Index Fund Weekly:
Index Launches
Individual Investor Group announced two new additions to the
America's Fastest Growing Companies index family: the LargeCap 50 and the
MidCap 300. The LargeCap 50 starts off with a base of the 100 largest
companies and selects the 50 with the highest earnings-per-share (EPS)
growth. The MidCap 300 focuses on companies with market caps between $2
billion and $20 billion. Like all indexes in the series, the indexes
rebalance each quarter by screening for EPS growth, slashing the bottom
10%, and replacing them with new companies that meet the initial selection
criteria. News article by IndexFunds staff
indexfunds.com
Index Effect
In these topsy-turvy days of volatile markets, who knows what's
up or down? The Dow could be up 250 today, and down 300 tomorrow. It's a
fool's game playing market direction, and every diehard index fund investor
knows it. One thing we can count on, though, is the index effect. When a
stock goes into the S&P 500, its price will rise - when one exits, look out
below. With over one trillion dollars indexed to the erstwhile index, the
effect, even on large-cap stocks, is not unexpected. Trading frenzies,
coupled with the actual sales and purchases made by the index funds
themselves, can drive prices up or down significantly in a short period of
time. Commentary by Jim Wiandt
indexfunds.com
Millionaire!
Millionaire is a book with a promise that index fund investing
can turn your lunch money into a million bucks. To be honest, it's not a
new concept. There are several investment books out there that espouse a
similar strategy, including three classics by John Bogle, who had this to
say about Millionaire: "I thought it was one of the most sensible - and
most compact - investment guides I've seen." What sets Millionaire apart
is that you don't have to know anything about investing to understand the
underlying message, which is this: save $179 a month ($6 a day), put it in
an index fund from age 25 to 65, and retire a millionaire. One of the
book's co-authors, who also helped develop the first index fund ever,
chatted with us. Interview with Wayne Wagner
indexfunds.com
Nasdaq 100 Autopsy
Thus far, 2001 has been like a train wreck for the technology
sector. In true rubberneck form, let's slow down for a second and take a
look at the extent of the carnage. Call it a morbid fascination, but new
research from the Equity Derivatives Strategy Department at Merrill Lynch
examines which companies are most responsible for dragging down the Nasdaq
100 index. News article by IndexFunds staff
indexfunds.com
--------------------------------------------------------------------
Previous Articles
Market Momentum
In an article in the October 2000 issue of the Journal of
Finance, Charles M.C. Lee and Bhaskaran Swaminathan presented their
findings on a study examining whether past returns and past trading volumes
had predictive value in terms of future returns. What the authors of the
study demonstrated was that those stocks that are rising tend to continue
to rise over the short term. However, over the intermediate term they
experience a reversal. The stocks that have risen the most on the most
trading volume tend to experience the fastest and sharpest reversals. The
stocks that experience these spikes and collapse tend to be growth stocks.
Issues article by Larry Swedroe
indexfunds.com
Tech ETFs
A new iShares exchange-traded fund (ETF) began trading on the
American Stock Exchange on Monday. The Goldman Sachs Technology Index Fund
(trading symbol: IGM) will track the Goldman Sachs Technology Index, and
has an expense ratio of 0.50%.The index is comprised of over 200 companies
in the following industries: producers of computer-related devices,
electronics networking and Internet services, producers of computer and
Internet software, consultants for information technology and providers of
computer services. News article by IndexFunds staff
indexfunds.com
Active vs. Passive
"Active management works better than passive index funds for
small-cap and international funds." This notion is so widespread that it
has become conventional wisdom in financial circles. We attempted to
address some of the issues that have dogged active/passive studies in the
pass. First, we looked at investable returns, not index returns. We chose
benchmark index funds to measure the performance of the field, and of
course only included small-cap funds in our survey, eliminating the natural
bias that exists when, for example, you compare the large-cap performance
of the S&P 500 with a relatively small-skewed group of mutual funds.
Advanced article by Jim Wiandt
indexfunds.com
ICI Study
Using mutual fund redemption rates to determine investor
holding periods isn't kosher, according to recent research by Investment
Company Institute (ICI). The problem with redemption rates, which measure
annual fund redemptions as a percentage of average assets, is that a small
minority of high-turnover shareholders can significantly jack up a fund's
redemption rate. This scenario can potentially skew the holding period of
the typical fund investor if it is calculated using redemption rates.
Issues article by John Spence
indexfunds.com
Free Investment Advice
The Vanguard Group and Financial Engines have inked an alliance
that will allow retail investors of Vanguard funds to receive portfolio
investment advice at no charge. Vanguard will initially offer the service
in the second quarter to participants in employer-sponsored retirement
plans, and later to Vanguard fund individual investors. The package was
originally designed for retirement planning, but Financial Engines is
expanding the service to allow retail investors to analyze an entire
investment portfolio. News article by John Spence
indexfunds.com
--------------------------------------------------------------------
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:
indexfunds.com
indexfunds.com
indexfunds.com
--------------------------------------------------------------------
Don't know what half the jargon on this newsletter means? Come
and Learn. One good run through all the listed articles and tools in the
Learn section, combined with some recommended reading from our Books page,
should have you fully up to speed and ready for sensible index investing.
Short-Term Returns 1 wk to 3/30 1 mo to 2/28 1 yr to 2/28
Russell 2000 1.64% -6.56% -16.84%
Russell 3000 1.74% -9.14% -10.33%
Dow Jones Industrial 3.93% -3.60% 3.62%
Nasdaq -4.58% -5.53% 5.79%
S&P 500 1.80% -9.11% -8.19%
3-month T-bill 0.24% 0.43% 6.26%
30 yr bond 2.95% -3.59% -12.98%
VG REIT 1.88% -1.72% 25.86%
Annualized Returns 5 yr to 2/28 10 yr to 2/28
Russell 2000
9.29% 13.14%
Russell 3000 14.94% 15.25%
Dow Jones Industrial 13.86% 12.34%
Nasdaq
12.83% 12.06%
S&P 500 15.90% 15.44%
3-month T-bill 5.36% 4.92%
30-yr bond -3.84% -
Complete Returns to 2/28/00: indexfunds.com |
