Head of Fixed Income Indexing Americas
Whenever I explain indexing to friends and family, I always fall back on my favorite analogy: the car race.Imagine a race where one car represents the market and is set up in a certain way—with tires, fuel, suspension, and so on—all meeting precise specifications.The indexer is in another car, and its job is to finish in a dead heat with the market car. Naturally the indexer will tune its car—or portfolio—to match the specs of the market car as closely as possible. All else being equal, this should result in the desired outcome. To extend the analogy further, active managers would tweak their cars to try to give themselves an edge in winning the race against the market car. That’s straightforward, right?