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A federal judge dismissed a Securities and Exchange (SEC) case against an Internet gambling site that ran a "virtual stock exchange." Here's how the game works: players pay to play, and "buy" and "sell" fantasy stocks under fake names. But here's the catch (and the eerie part) - there is absolutely no rhyme or reason to the performance of the "fantasy" stocks. Sound familiar? News article by John Spence
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2001 ETF Launches
2000 was a busy year for exchange-traded fund (ETF) launches and asset growth. According to the American Stock Exchange (AMEX), assets in ETFs listed on the exchange reached $70.3 billion, nearly doubling the 1999 year-end total of $35.9 billion. Also, the total number of ETF products jumped to 92, compared to 32 the previous year. And if the opening month of 2001 is any gauge for the upcoming year, expect plenty more ETFs to come to market worldwide. News article by John Spence
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Michael Petronella
Michael Petronella is Managing Director at Dow Jones Indexes. Mr. Petronella has overall responsibility for the day-to-day operations of this unit that formulates, markets and sells all Dow Jones indexes for countries, regions, sectors and industry groups. He recently sat down with IndexFunds.com's, Site Editor Jim Wiandt to discuss the history of Dow Jones indexes, the free-float debate, and how Dow Jones plans to construct international country and sector indexes. Interview by Jim Wiandt
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Dunn's Law
"When an asset class does well, an index fund in that asset class does even better," says Steven Dunn. One of the silliest bits of conventional financial wisdom is the notion that while indexing works well with the efficient U.S. large-cap market, there is benefit from active management in the "less efficient" small-cap and foreign arenas. In fact, Charles Schwab enshrined this dubious notion with its "Core and Explore" concept - index ("core") the former, and actively manage ("explore") the latter. This comforts greatly the legions of active-management-associated investment advisors and pension consultants, to whom it grants brief respite from the dustbin of financial history. Obviously, the good folks at Schwab haven't yet heard the Gospel According to Dunn: that the fortunes of indexing a particular asset class depend on its performance relative to other asset classes. Issues article by William J. Bernstein
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Previous Articles
Year-end Review
What a difference two years can make. In 1999, only 33% of mutual funds were able to beat Standard & Poor's (S&P) 500. In the year 2000, over 72% of all mutual funds managed that task. Nearly half of all funds managed to outgain the S&P 600 Small Cap index in 1999. In 2000, a mere 16% managed the task. Includes in-depth charts and comparisons of mutual funds to their respective asset class indexes. Issues article by Jim Wiandt
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New SEC Rule
The Securities and Exchange Commission (SEC) adopted a rule that requires fund companies to disclose after-tax returns for 1-, 5-, and 10-year periods in fund prospectuses. The new rule underscores the growing, albeit slowly, awareness of mutual fund taxes and how they can affect returns - the SEC cited recent estimates that more than 2.5% of the average stock fund's returns were eaten up by taxes. According to the SEC, mutual funds distributed approximately $238 billion in capital gains and $159 billion in taxable dividends in 1999. News article by Index Funds staff
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ETF Growth in 2000
If S&P 500 index funds were the most notable success story from 1996-1999 and technology funds were the talk of the industry in 1998-1999, then their headline-grabbing successors in 2000 were probably index-based exchange-traded funds. After seven years of relative obscurity, modest asset growth, and stagnant product development, these innovative hybrid instruments finally exploded onto product development radar screens in 2000. While the number of funds has risen by 160%, total ETF assets have increased by 86% to nearly $63 billion, up from less than $34 billion at the end of 1999. Issues article by Gavin Quill of Financial Research Corporation
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FRC Study
Bad news from Financial Research Corporation: fund investors chase returns like a mule with a carrot dangling in front of its nose - and it's hurting them in the long run. In a study commissioned by Phoenix Investment Partners, FRC found that mutual fund investors had 20% lower returns, on average, over 3-year periods during the last decade This evidence lends credence to a common phenomenon in the investing world: fund has record-breaking year/quarter, media attention and advertising hypes fund, fund manager speaks on CNBC, cash flows into fund, fund returns to earth leaving most of its new investors holding the bag. Issues article by John Spence
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Book Review: What Wall Street Doesn't Want You to Know
Larry Swedroe's second book, a straight-up assessment of the true value and effectiveness of active management, is aptly named. In What Wall Street Doesn't Want You to Know, Swedroe examines many of the commonly-held myths concerning stock-picking and market timing, and questions the true motivations of the financial press. Once Swedroe debunks the perceived benefits of active management, he outlines how investors can assess their financial situation and use low-cost index funds and asset allocation principles to invest smartly. Interview by John Spence
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Our discussion boards are a haven of brilliant and independent thought: Any question is welcome on the Beginner's Board, The Main Board is the central discussion forum for all matters having to do with index funds, and on the ETF Board you can banter to your heart's content about these crazy things they call exchange-traded funds that seem to be sweeping the globe and changing the face of indexing. URLs for discussion boards follow:
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