Index Funds, the ultimate wisdom ?????
I would like to start a thread on index funds. Anyone is welcome, please vocate your opinions ! I'm especially interested in any critics about index funds.
The general theme usually is: Since index funds outperform 70% of the actively managed funds, why bother investing money in these actively managed funds ?
To start, here some arguments which would contest the leadership of index funds:
1) The success of indexing is a self-fulfilling prophecy.
Some market observers believe that indexing's extraordinary returns are a self-fulfilling prophecy. Large S&P 500 Index funds, they say, are driving up the prices of the stocks contained in the Index, thus contributing to the benchmark's stunning performance relative to active funds. The sudden surge of cash into S&P 500 Index funds, combined with the recent performance of these funds, would seem to prove this theory correct.(taken out of VanGuard's, the king of indexing, website)
2)Since most index funds are invested fully all the time, there performance should implicitly be higher compared to other funds, which are usually invested only up to 95%. (which implies of course that index funds should underperform the market in bear markets)
Other questions, I'd like to hear other peolpe's view on:
What percentage of total market capitalisation can index funds take up?
How much will index funds inflate artificially stock prices due to 'blind' nature of investing?
Are the new 'nifty fifty' stocks a mere offspring of the index funds?
How much can the recent out-performance of the S&P500 be contributed to fund inflows into index funds mirroring exactly this fund ?
Why does the king of indexing recently pulled its advertising for its index related products?
How do the relative performances compare in bear vs bull markets ?
Do active fund managers have an advantage in bear markets ?
I hope there is some interest in it. What are your views ??
Regards
oliver |
