Which factor is a disadvantage of using style indices as benchmarks?

The selection that style indices may show excessive weightings is an important consideration when evaluating their effectiveness as benchmarks. Style indices, which group stocks or funds based on specific investment styles—such as growth, value, or blend—can sometimes overrepresent certain sectors or securities within those categories. This excessive weighting can distort performance comparisons because the benchmark may not accurately reflect the broader market or the specific investment strategy being followed. If a fund manager’s portfolio is diversified across various sectors and styles but the benchmark has significant concentration in select areas, it can lead to misleading conclusions about relative performance. Hence, relying on such benchmarks could yield a skewed perspective, which investors need to be cautious of when measuring investment success.

Other options, such as replicability, uniform acceptance, and simplification of the investment process, do not highlight the nuanced challenges posed by style indices in accurately representing market dynamics and evaluating fund performance.