Compass EMP Funds

The S&P 500 is one of the most widely-followed market indexes across the globe with over 1 trillion U.S. dollars in assets tracking its performance. Despite its widespread acceptance, it contains some inefficiencies One of the chief inefficiencies, and the main focus of this commentary, is in how weights are assigned to members in the index as a market capitalization-weighted index.

The world economy has continued to slow during the last few months. The next several quarters are likely to be weak for three reasons. First, fiscal policy will continue to be restrictive as plans to trim excessive federal budget deficits continue to unfold. Second, private sector demand looks gloomy because households will continue to deleverage from high debt levels while unemployment remains a problem. Third, the uncertain future of the Euro-zone debt situation remains a major setback to future economic growth.