Why stockbrokers are overweight
Spencer Winfield at stockbroker Charles Stanley replies: When providing performance comparisons for a portfolio, a stockbroker or fund manager will normally compare the rise or fall of the portfolio they manage against a particular index or indices.
The index will generally be chosen at the portfolio's creation and used as a benchmark against which the portfolio's performance can be measured.
The choice will depend on the requirements of the client in the case of a bespoke portfolio run by a stockbroker, or the fund's objectives in the case of a fund manager.
For example there would be little point in comparing a UK 'Blue Chip' equity portfolio's performance to the Nikkei Index in Japan as the two bear no relation to one another.
One would instead use one of the Association of Private Client Investment Managers and Stockbrokers' indices or, for simplicity in the following example, the FTSE 100 Index.
The FTSE 100 Index constitutes the 100 largest companies by market capitalisation and could therefore be considered a suitable unit of measurement for a UK 'Blue Chip' equity portfolio.
And because market capitalisation dictates a company's right to inclusion in the FTSE 100, there is an uneven distribution of sectors and stocks in the index.