Indexing

Lots of ways to think about this term, but in this context, let's think about it from the perspective of a professional mutual fund manager who wants to index his portfolio directly against the way in which she is measured to glean success or failure.

So her fund's index is set as The S&P 500, which has, say, 8% of itself these days in whatever they define as telecommunications stocks. The professional manager in her then asks questions to decide how to reflect her convictions in the portfolio:

1. Will telecom do better or worse than the market? (Do I want to over-or-underweight the index or this part of the portfolio?);

2. Are there outlier or special case stocks inside of this group that won't follow the industry sector's performance, and will behave like "special situations"? Like...AT&T is now more of a media company in many ways; will it diverge from Telecom performance (regulation? growth? globalness?) or will it just be a market performer?

This set of questions is all about portfolio indexing, wheren each element of the portfolio is indexed to however the rules-makers who sold the fund to investors in the first place determined you'd be measured for being, good, bad, ugly, naughty, and/or nice.