The perils of index hugging

January is a time of resolutions. We seek to address some of our bad habits, and become just a little more virtuous. But sometimes our greatest problem is in the recognition of the worst of our bad habits. One that I worry about is our unhealthy reliance upon investment indices. They seem so innocuous. Most clients feel that indices are their friend. After all, indices act as a Darwinian force, a yardstick to highlight the effectiveness or otherwise of the fund manager, and ultimately eliminating the less able. They also help classify the universe of companies within which a particula...