So Cosmo, are you saying that while most funds underperform, these sneaky index FMs know how to beat the index, but are promoting indexing to the great unwashed, while secretly beating the index to line their own pockets? Heck, they probably don't even own any S&P's, they are probably into Dogs of the Dow, right? :-) Hey, and maybe the underperforming FMs are really indexing and pocketing the difference. Say it ain't so, Cosmo!
Seriously, I didn't know they could guarantee index returns while trying to beat the index. Makes sense, but also sounds like a risky strategy, and one that could easily be abused. If the fund were large enough, for example, it could attempt to beat down the index in a way that favored their own holdings. And if their selection underperformed regularly, the company to take a real bath, when they could instead have hired an underpaid accountant to match the index.
I just checked the Vanguard Index 500 prospectus and although they have a few loopholes in there, such as "trying" to match the index as closely as possible, they do give an example in which they would be 5% invested in a company that made up 5% of the index. |
