Hi DD,
That does offset some of the ones that move up the S&P500
still look at it this way, they can only run so far and they
are gone, the SPY runners don't have that limit. On top of
that once they move into the SP500 they get a shot in the arm
from all the S&P500 index tracking funds, that now have to
buy them.
It's just that the indexes are set up that way along with the mechanics of the Futures pit and arbitrage trading and all.
Take MSFT, from the time she entered the Mid cap index just
how much market cap could she add to that index before she
moved to the S&P500, but once there she added mega times that
amount to the S&P500, which has a built in advantage in more ways
than one, but the primary one is it don't get the hair cut when a runner really runs, there is no limit to the market cap size;
it kicks out dead horses but not the good ones.
It will always have an advantage ( a good one at that )
unless they completely change the rules.
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Last but not least Real big caps represent Liquid to the
institutional invested, ( they can get out or sell a lot
of shares before they kill the price to much ) The mid caps
are not as easy to get profits out of if you own a bunch of
stock, and when serious down turns do come, It's the rush to
the door that takes the Mid caps and small caps down so fast,
and deep. It's well known in any big market correction that
smaller caps suffer the worst hits, they just are not as
liquid and when panic sets in they drop like a rock.
When the overall market is strong and full of exuberance,
Mid and small caps do often out run the Big Boys, ( but the
index itself is still hamstrung ) it may for a short burst
go up faster than the S&P500, but here again it can't hold that
and after a while the S&P500 will take charge again.
I even noticed some small cap funds that out run the S&P500,
But only the ones who are not forced to sell their winners
just because they went from Small to Mid to Large caps.
Indeed good managers that can pick small caps good can do better
than some of the large cap fund over time, as they may only buy
small caps, but unlike the MDY , they don't have to dump them
when they really really go.
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So from the point of playing SPY and MDY, long SPY and Short MDY
will always give a long term hedge that makes money if you allocate
the same amount to both sides, each time you enter or add to it.
It's a cinch ( over any extended period ).
The only thing that can go wrong with it is if the trust of
either one some how was to go into default. In that case hope
your not in the market in any way, as that kind of melt down
would be caused by such a disaster that being short
any where wouldn't even help. All derivatives would likely
default.
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By the way if you play the SPY or MDY or DIA, your an arbitrage
trader by proxy as that's the way they stay in step with
the indexes.
Jim
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