Managers should not benchmark the performance of their growth and value portfolios to the Standard & Poor's or Barra growth and value indexes, a recent study in the Journal of Investment Consulting maintains. The reason? The benchmarks are flawed.

The indexes classify every stock in the S&P 500 as either growth or value stocks, according to the study, "Structural Imperfections in the Algorithm of Certain Equity Style Indexes." Twice a year, Standard & Poor's calculates the price-to-book ratio for each stock, and then ranks the stocks from highest to lowest. Then the research firm divides them so that there is roughly equal market capitalization for the top and bottom groups. The stocks in the top group become the growth index, while the stocks in the bottom group make up the value index.

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