Andrew,
If, indeed, a handful of technology stocks are pulling up the indices, then you cannot blame index fund investors for that. They buy the whole index - S&P500, for example, which is not technology biased - and not select stocks. It must be that non-index funds investors (read, fund managers who are closet indexers of only the momentum stocks in the index) who are responsible for the narrowing. This is true even accounting for the weighting. Some of the biggest contributors to major indices by weight, like MSFT and DELL, have hardly increased in the past year despite the volume of money going into indices.
And, what do you have to say about the Russell? In a narrow market, why is that gaining? The fact is that when people talk about the market narrowing, they dislike the fact that it is technology that is growing and the so-called old economy is stagnating. Well, so is life!
So, I think that you are wrong to blame the increase in indexing phenomena for the narrowing of the market.
Next, risk premia are dependent on future performance. You are claiming that your crystal ball is more accurate than the markets. Well, you know that such subjective claims may not be debated.
-BGR. |
