Cap-weighted “core” may be increasingly hard to treat as a neutral policy default. Concentration and drift have made index exposure an implicit active decision.

This paper introduces Stochastic Portfolio Theory, a framework built to address today’s structural challenges by separating portfolio growth into stock effects and volatility effects and engaging both through engineered diversification and disciplined rebalancing.

For fiduciaries, the urgency is governance: when risks are measurable, they should be documented and managed, as benchmarks concentrate and correlations shift.

What You’ll Learn

• Why cap-weighted “core” may embed concentrated, non-neutral risks

• How to stay benchmark-aligned while mitigating benchmark risks

• What Stochastic Portfolio Theory reveals about portfolio growth

• How diversification and rebalancing may support a governable core

Disclosures

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