1 / 32

Indexing:

Indexing:. The Good, The Bad, And the Ugly. Part 1: The Good. U.S. Equity Index Funds as a Percentage of U.S. Equity Mutual Fund Assets. Net Flows to US Index Funds ($ Billions). Net Assets vs. Number of ETFs ($ Billions). The Good:. They’re cheap.

jalene
Download Presentation

Indexing:

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Indexing: The Good, The Bad, And the Ugly

  2. Part 1:TheGood

  3. U.S. Equity Index Funds as a Percentage of U.S. Equity Mutual Fund Assets

  4. Net Flows to US Index Funds ($ Billions)

  5. Net Assets vs. Number of ETFs ($ Billions)

  6. The Good: • They’re cheap. • Sometimes, markets actually are efficient.

  7. Active Management’s Dirty Little Secret

  8. Not Just an Equity Phenomenon

  9. Indexed Funds vs. Actively Managed:

  10. Part 2:TheBad

  11. Types of Indexes: • “Plain Vanilla” – Market Cap/Market Cap • Equal Weighted • Fundamentally selected and/or weighted • “Proprietary” – Opaque methodology

  12. Market-Cap Weighting… …works well when… • Large cap outperforms • Growth outperforms • Bubbles form but falters when… • Small cap outperforms • Value outperforms • Bubbles burst

  13. Equal Weighting… …works well when… • Small cap outperforms • Bubbles burst • Sector over-weights outperform but falters when… • Large cap outperforms • Bubbles form • Sector underweights underperform

  14. Fundamental Weighting… …works well when… • Small cap outperforms • Value outperforms • Bubbles burst but falters when… • Large cap outperforms • Growth outperforms • Bubbles form

  15. Proprietary Indexes… Falter when… • Small cap outperforms • Value outperforms • Bubbles burst

  16. Nasdaq 100 in Depth: Restructuring Occurs When: • Any security’s weight surpasses 24% or • The aggregate of positions of more than 4.5% is greater than 48% or (apparently) • Nasdaq feels like it

  17. How the Rebalance (is supposed to) Works: • Weights of all stocks that are > 1% of the index are reduced in tandem until the offense is cleared up • The pool of weight is then redistributed, issue by issue, to those stocks under 1% of the index In other words “we wish we’d made this index equal weighted to begin with.”

  18. How the Rebalance Did Work (4/29/2011):

  19. What’s Wrong with the S&P 500: Why Committees Aren’t Great: • Human discretion instead of Rules based decision making • Present uncertainty around rebalance and inclusions, decreasing market efficiencies • Possible conflicts of interest

  20. Does Type Matter?

  21. Does Type Matter?: Top 5 Holdings

  22. Part3:TheUgly

  23. Core Problems with Commodities Indexes: What’s the Market Cap of Wheat? Which “Oil” Do You Buy?

  24. Four Main Commodities Indexes: DJCI CRB GSCI Rogers

  25. How Do They Stack Up?

  26. Structure Matters

  27. Patching the Holes:Better Natural Gas?

  28. A Note on Performance:

  29. Fixed Income: Who would you rather lend money to: Bill Gates? Or Donald Trump?

  30. Fixed Income – Fundamental Weighting Source: Shane D. Shepherd, “Fundamental Index Fixed-Income Performance: It’s All in the Price,” The Journal of Index Investing, Spring 2011.

  31. Conclusion

  32. Indexing: The Good, the Bad, and the Ugly

More Related