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Don't be fooled by 'Dreamwashing'

Many Happy Returns

CHAPTER

Closet Indexing and Investor Outcomes

There was a working paper from the European Securities and Markets Authority in 2020 called closet indexing indicators and investor outcomes. And they came up with a methodology to try and look at the funds in Europe, the active funds and work out how many of them are potential closet indexes. A hundred would mean that it's got absolutely nothing to do with the benchmark. So for example, if you have Canadian stocks substituted for US stocks, the returns will be very similar. Not all differences in holdings between a portfolio and the index will have same impact on performance.

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