Structured-Portfolio Advantages

We now turn our attention to another way in which structured portfolios can add value over index funds; namely, by creating “core funds.”

Core portfolios combine multiple asset classes into one fund. The following provides a good example of why a core approach is superior to a component approach, and is the most efficient way to hold multiple asset classes.

The Russell 3000 can be broken down into four components: the stocks that make up the Russell 1000 Growth index; the stocks that make up the Russell 1000 Value index; the stocks that make up the Russell 2000 Growth index; and the stocks that make up the Russell 2000 Value index.

I once observed a case where an institution held all four components in exactly the same market-cap weighting as did the Russell 3000. In other words, they owned the same stocks in the very same proportions as the Russell 3000, only in four funds instead of one.

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