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Article Archive: Indexing

Buying tiny ETFs
04/03/24   Indexing
"We went with a NAV trade in this case, deploying $60 million into a $6 million ETF very efficiently in a single trade."

Fear of heights
02/16/24   Indexing
"In other words, we'd all prefer to invest when the market's cheap, but investors were still better off putting money into the market at all-time highs than not at all. The lesson: Investors who wait on the sidelines in the hope of earning better returns may miss out on receiving any returns."

Trend to passive investing
02/03/24   Indexing
"Expense ratios (about 70 basis points higher for active funds) largely explained the differences between gross and net returns for both active and index funds."

From COW to KARS
01/28/24   Indexing
"The ideal investment, in my opinion, is a simple, broadly diversified stock or bond index fund, such as one that tracks the S&P 500."

Better and better
12/15/23   Indexing
"Looking back over the post-World War II period, I see five key phases in our thinking about money, and those phases roughly parallel the needs and wants of the baby boomers, as they went from amassing money for retirement to spending down those savings."

What goes up
11/12/23   Indexing
"Frustrating as it might seem, the reality is that any investment trend we observe might keep going or it might not, or it might continue for a while longer before fading or even reversing."

Morgan Housel's portfolio
09/24/23   Indexing
"Save your money and have a level of cash with which you can absorb and manage and survive all of the unpredictable nonsense in the economy, but invest your money like an optimist."

On second thought
09/10/23   Indexing
"I'm no longer much interested in retirement, at least as traditionally defined. Instead, I see the overriding goal as financial freedom - meaning the freedom to spend my days as I wish without worrying about money. What's the key to not worrying? In large part, it's about feeling we have enough, which is less about a specific dollar amount and more about our willingness to be content with what we've accumulated."

Looking up and down
07/16/23   Indexing
"I'm happy to over-rebalance when the stock market nosedives, shifting a higher percentage of my portfolio into stock funds than my written asset allocation calls for. But the opposite isn't true. When stocks soar, I sell shares to get back to my target percentage"

No right way
07/09/23   Indexing
"Every indexer makes judgment calls. Yes, there may be choices that are more sensible than others. But there's no one index-fund portfolio strategy that's right for everyone. Instead, the right portfolio is the one that works for you."

Negatives of index replication
06/16/23   Indexing
"The dirty secret of index fund investing is that the transaction costs are still there and simply hidden in plain sight."

The disappearing index effect
02/05/23   Indexing
"The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 3.4% in the 1980s and 7.6% in the 1990s to 0.8% over the past decade. This has occurred despite a significant increase in the percentage of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns on average during the 1980s and 1990s, but only -0.6% between 2010 and 2020."

Avoidable costs of index rebalancing
05/29/22   Indexing
"Traditional capitalization-weighted indices generally add stocks with high valuation multiples after persistent outperformance and sell stocks at low valuation multiples after persistent underperformance. For the S&P 500 Index, in the year after a change in the index, additions lose relative to discretionary deletions by about 22%. Simple rules, such as trading ahead of index funds or delaying reconstitution trades by 3 to 12 months, can add up to 23 basis points (bps). This benefit doubles when we cap-weight a portfolio not selected on market value, but based on the fundamental size of a business or its multi-year average market cap."

The politics of passive investing
03/06/22   Indexing
"Most of us in the finance world are well aware of the evolution of 'passive' equity investing over the years, and have witnessed its tremendous growth. And some of us have asked questions about it. We've asked is it all good? Is it mostly good? Are some aspects perhaps bad? Are some really bad? It is a subject that has kindled fierce deliberation."

ETFs are not eating the world
01/30/22   Indexing
"Today, there are more than 2,000 equity-focused ETFs in the United States and only about 3,000 US stocks. These ETFs cover every imaginable strategy and are almost all active bets. This is definitely not what the ETF's creators had intended."

Inflation-Themed ETFs
11/21/21   Indexing
"Although we refer to these five products as inflation-themed, they do not target to offer the actual inflation rate, but a return above that, or exposure to companies that should benefit from inflation. Given this, we observe low correlations of the ETFs to the US 10-Year breakeven inflation rate, which is a measure of the expected inflation and the only time series with daily data."

The mirage of direct indexing
11/14/21   Indexing
"Regardless, managing an investment portfolio based on tax decisions is wrong in principle and carries significant risks, for example, selling losers at an inopportune time, say during a stock market crash. Typically, the worst-performing stocks rally the most during recoveries. So, if these have been sold off, the investor captures the full downside but only a portion of the upside."

Charles Ellis interview
07/25/21   Indexing
"If you look at all those different component parts, most of us have way too much in stable assets, which is what bonds are supposed to do, which is why in the present circumstances, where the expected inflation is higher than the rate of return on the bond, it's really hard to justify being a bond investor today."

Beat the stock market
07/19/21   Indexing
"His firm's research finds that buying the outgoing stock in discretionary deletions from the S&P 500 at the closing price on the day it's removed from the index has beaten the market by an average of nearly 20% over the following 12 months."

The problem with momentum ETFs
06/13/21   Indexing
"This highlights the challenges with momentum ETFs that rebalance only twice a year. In a rapidly changing market environment, the strategies can be slow to catch-up meaning any hope of outperformance, especially in the short term, is most likely wishful thinking."

Indexes proliferate
05/30/21   Indexing
"The lines have blurred between what constitutes an index and what is simply another active investment strategy"

One-click portfolios
02/20/21   Indexing
"I mention all of this to provide some context for a discussion of TD's new trio of One-Click ETF Portfolios. Like other asset allocation ETFs, they offer investors an opportunity to build a globally diversified portfolio at low cost (the management fee is 0.25%) with a single product. But a close look reveals they're far more active than their counterparts from Vanguard, iShares and BMO."

ETF pairs for tax-loss selling
11/08/20   Indexing
"A quick recap: effective tax-loss harvesting with ETFs involves selling a fund to realize a capital loss and immediately replacing it with a similar fund that would not be considered 'identical property.' According to the Canada Revenue Agency, two index ETFs are identical property if they track the same benchmark."

Look under the hood
11/01/20   Indexing
"Because of S&P's discretionary power, some stocks aren't included in any of those three indexes. One such stock: Tesla, which has been left out in the cold. The index committee won't let it into the large-cap index. But because of its size, it isn't eligible for the mid-cap or small-cap index, either."

Index Investors in the pandemic
09/06/20   Indexing
"Less than one half of one percent of Vanguard Investors moved to cash - thats less than 0.50%. This is at a time when the unemployment rate spiked up towards 30% and nearly 40 million people lost their jobs."

Expected returns for the balanced ETFs
08/30/20   Indexing
"Justin shows Canadian DIY investors how to calculate an expected rate of return for their Vanguard Asset Allocation ETFs (VEQT, VGRO, VBAL, VCNS and VCIP) and iShares Asset Allocation ETFs (XEQT, XGRO, XBAL, XCNS and XINC)." [video]

Weaponized indifference
08/14/20   Indexing
"On essentially no volume, the live, trading price of DGAZF has shot from a net asset value - what the thing is actually worth - of around $125 to $25,000! Cats and dogs living together! 40 days and nights of rain!? The twitter hyperbole has been intense, so lets explain what's actually happening, and how it's possible."

Vanguard investors holding steady
04/04/20   Indexing
"The typical trader is buying equities on the dips, but older, wealthier traders are moving modestly to fixed income. On balance, we believe these levels of trading indicate that the vast majority of investors are maintaining a long-term perspective despite the market turmoil."

Bond ETFs are being dislocated
03/27/20   Indexing
"The chart below shows us the dislocation between the AGG and its benchmark. Clearly, things became dislocated on March 10th, 11th, 12th, etc."

2020 Couch Potato Model Portfolios
01/24/20   Indexing
"ETFs still aren't right for everyone, but the launch of 'one-fund portfolios' (also called asset allocation ETFs), combined with the low- and no-commission trades at several brokerages, have made them more appropriate even for small portfolios. For the vast majority of DIY investors, I believe these one-ticket solutions are the best way to build a diversified portfolio that balances low cost with ease of maintenance."

Kung Fu fighting
09/10/19   Indexing
"So, this was all a long-winded way of saying, at least at the market level, that we do not think that the tail is yet wagging the dog. We do not believe that passive investing is a bubble, nor do we believe that it is to blame for the underperformance of small caps or value, nor even that they deserve credit for strong equity markets in the US."

Horizons swap ETFs
09/10/19   Indexing
"Should investors be concerned about additional risks in the new corporate class structure? And what is the likelihood that the new ETFs will continue to deliver the returns of their underlying indexes with no taxable distributions?"

The passive bubble
09/06/19   Indexing
"It's like worrying about a trend where everyone decides to eat better, thus hurting sales at McDonald's."

Direct indexing
04/21/19   Indexing
"ETFs disrupted mutual funds by offering something a little bit better. Now ETFs face disruption because direct indexing offers several new features that make them much better."

Multi-factor ETFs
04/12/19   Indexing
"There is a lot to consider in relation to the composition and performance of multi-factor ETFs in the US stock market. Perhaps the most interesting insight is that these products feature factors such as growth that are not supported by academic research and lack exposure to established ones like quality and momentum."

ETF tax dodge
04/03/19   Indexing
"It turns out that transfusions like these are tax dodges, carried out by the world's largest asset managers with help from investment banks. The beneficiaries are the long-term investors in exchange-traded funds."

The equilibrium consequences of indexing
03/25/19   Indexing
"As indexing becomes cheaper (1) indexing increases, whileindividual stock trading decreases; (2) aggregate price efficiency falls, while relativeprice efficiency increases; (3) the welfare of relatively uninformed traders increases; (4)for well-informed traders, the share of trading gains stemming from market timing in-creases, and the share of gains from stock selection decreases; (5) market-wide reversalsbecome more pronounced. We discuss empirical evidence for these predictions." [pdf]

Broken beta
02/12/19   Indexing
"Smart beta will disappoint some investors, but that's as much their fault as the product providers. Investors do not appreciate the significant tracking errors relative to their benchmarks. This has led ETF issuers to create index products with only slight factor tilts. Given the higher price tag of smart beta ETFs compared to plain-vanilla equity ETFs, they are probably not worth the higher fees."

Rebalancing for ETFs
02/05/19   Indexing
"Rebalancing spreadsheets are not new, but this one has an additional feature I hope you will find useful: it allows you to incorporate ETFs that hold more than one asset class."

John Bogle dies at 89
01/16/19   Indexing
"John C. Bogle, 89, who revolutionized the way Americans save for the future, championed the interests of the small investor, and railed against corporate greed and the excesses of Wall Street, died of cancer Wednesday at his home in Bryn Mawr, his family confirmed."

Bogle sounds a warning on index funds
12/03/18   Indexing
"If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation. These will be major issues in the coming era."

Bundled investment sales
11/05/18   Indexing
"If most financial services are sold rather than bought, regardless of their intricacy, then why are variable-annuity presentations accompanied by filet mignon, while index-fund discussions are not?"

Charley Ellis interview
08/07/18   Indexing
"Charley was an early guest on the show and we reconvened to talk through the full case of indexing for individuals and some of its constraints for institutions. Our conversation covers the case for indexing, smart beta, the retirement problem, investing in alternatives, private equity, and indexing challenges in emerging markets." [audio]

ETFs with Eric Balchunas
07/02/18   Indexing
"My guest this week is Eric Balchunas, the senior ETF analyst for Bloomberg and the author of the Institutional ETF toolbox. This episode is intended for those in the asset or wealth management industry who have considered using ETFs in their portfolios, or for the individual investor who likes to stay up to date on trends in the market for asset management products. We cover all aspects of ETFs in some detail" [audio]

Does your alpha cover its taxes?
06/19/18   Indexing
"Management fees, the investment industry's most visible cost, often get more attention than the less visible and typically larger costs associated with trading and taxes."

Looking past the package
05/07/18   Indexing
"ETFs have adopted all of the mutual fund industry's bad habits."

Vanguard's one-fund solution
02/05/18   Indexing
"It was one of the great mysteries in the Canadian fund market: why had no one created an ETF version of the balanced index mutual fund?"

Direct indexes: cheaper than ETFs
10/23/17   Indexing
"Direct Indexes, where investors directly own shares in a basket of stocks that track an index, outperform ETFs on an after-tax basis. Given that ETFs beat 80 - 90% of all active investments, that's a big plus for Direct Indexes. But Direct Indexes are better than an ETF in another important way: they have the potential to be much less expensive."

Low vol in perspective
10/16/17   Indexing
"The superior performance of low-volatility stocks (as well as low-beta stocks, which are closely related) was initially documented in the academic literature in the 1970s, before even the size and value premiums were 'discovered.' The low-volatility anomaly has been found to exist in equity markets across the globe, and not only for stocks but for bonds. In other words, it has been pervasive."

10/16/17   Indexing
"Shiller's CAPE ratio looks at how current stock prices compared to the company's average inflation-adjusted earnings over 10 years. As described in the BMO prospectus, the indexing process for its ETF involves identifying the top 100 securities with the highest 10-year CAPE yield based on price and sector. A momentum filter is then applied to remove 20 securities with the lowest price momentum over the last 12 months. The remaining securities are equally weighted."

Protection money
08/20/17   Indexing
"Vanguard Group is my favorite fund company - and the place where I now keep all my investment dollars. There's no mystery why: Among mutual fund companies, Vanguard has long been not only the biggest champion of index funds, but also the firm with the lowest annual fund expenses. Except that's no longer the case."

ETF ratios
08/16/17   Indexing
"Depending on how you calculate the average, subtracting the large losses of a few companies from the combined profits of the others can leave a much smaller total of net earnings to go around. That can make the index look more expensive than it effectively is."

The math behind futility
05/28/17   Indexing
"The distribution of returns in the stock market is bizarrely lopsided. Often, equity benchmarks are so reliant on gigantic gains in just a handful of stocks that missing them - as most managers do - consigns the majority to futility."

A monster ETF trade
05/21/17   Indexing
"Until 11:49 a.m. EST, exactly one share had traded hands. Then, boom, 15 million shares. It's not often you see a tape like this"

An ETF gets too big
04/23/17   Indexing
"Can an exchange-traded fund get too big for its index? That's the question investors in one popular gold miner ETF are grappling with after rapid asset growth pushed it to significantly deviate from its underlying index."

ETFs are the new bond kings
04/09/17   Indexing
"Exchange-traded funds are transforming debt markets as big investors use them in ways considered crazy a few short years ago."

The permanent portfolio
03/26/17   Indexing
"The Permanent Portfolio strategy is about as promising as any that I have seen for preserving the value of assets through a wide number of macroeconomic scenarios. The volatility is low enough that almost anyone could maintain it. Finally, it's pretty simple. Makes me want to consider what sort of product could be made out of this."

The momentum index
01/28/17   Indexing
"Momentum investors cut their losers and let their winners run. In a roundabout way, that's exactly what the stock market has done over time."

Charley Ellis interview
01/28/17   Indexing
"Ellis explains that the best approach for most individual investors is a simple asset allocation composed primarily of low cost index funds."

WealthTrack: Arnott interview
12/11/16   Indexing
"When 'smart beta' investing can be dumb. Financial innovator and thought leader, Research Affiliates. Robert Arnott warns about pitfalls with the popular strategy he helped create." [video]

Vanguard's Gerry O'Reilly and Jim Rowley
10/23/16   Indexing
"This episode is a rare and fascinating look into the world's largest asset manager. My first guest is Gerry O'Reilly, who is the portfolio manager for the largest mutual fund in the world, and oversees more than $800 billion for Vanguard. My second guest is Jim Rowley, a Senior Investments Analyst with deep knowledge of indexing and ETF's. The two provide incredible insight into some of the particulars that make Vanguard and its funds tick."

Turning over accepted wisdom
10/16/16   Indexing
"How many of us often just cite 'the average can't beat the average' and move on assuming we've smashed whoever we were debating? I know I have done it many times. Sharpe's insight is, in my opinion, likely still mostly true, perhaps entirely true. But Lasse has, at the very least, created some doubt for me in something I was pretty sure about."

Sharpening the arithmetic
10/16/16   Indexing
"I challenge Sharpe's (1991) famous equality that 'the return on the average actively managed dollar will equal the return on the average passively managed dollar.' This equality does not hold in general. It is based on the implicit assumption that the market portfolio never changes, which does not hold in the real world because new shares are issued and others are repurchased. Hence, even 'passive' investors must trade regularly in order to maintain their market-weighted portfolios. Since passive investors may trade at less favorable prices than active managers, Sharpe's equality is broken. The changes of the market portfolio are large enough that active managers can add noticeable returns. Hence, active managers can be worth positive fees, which allow them to provide an important, beneficial, role in the economy - helping to allocate resources efficiently. Passive investing also plays a useful role, especially since the average active mutual fund manager has charged larger fees than their value added."

The illusion of choice
10/16/16   Indexing
"The challenge with dividends as an investment factor, as opposed to Value, Momentum, or Quality, is that only so many companies pay dividends. As buybacks have become more popular in the U.S., the share of stocks paying high dividend yields has declined. The chart below breaks down dividend payers listed on the S&P 500 by their level of yield. While the share of companies paying small yields of less than 1% has decreased, the share of companies paying greater than 4% has also declined. Historically, about 12% of S&P 500 stocks offer a yield of 4% or greater. As of the third quarter, the tally is half that at 6%."

A more balanced S&P 500
10/09/16   Indexing
"According to Willis, rebalancing the portfolio of 500 stocks each quarter to its original weight level, as the INDEX does, ensures that investors are adding stocks that have fallen in price and selling stocks whose prices appreciated. Thus, the mechanism of the equal-weight index embeds the 'buy low, sell high' strategy."

Testing smart beta
08/14/16   Indexing
"Equal weighting isn't everyone's cup of tea, but the numbers on a trailing 10-year basis, which encompasses a full business cycle of stress testing, are strong enough to give advocates of the strategy plenty of ammunition for arguing their cause."

Index revolution
08/14/16   Indexing
"Charles Ellis on why investing in low cost, passive index funds, not actively managed ones is the best choice for most individual investors."

Cost versus convenience
06/25/16   Indexing
"if you also factor in the management expense ratios, the total cost of VXC in a retirement account is 0.71%, compared with just 0.19% for the US-listed ETFs"

The high price of low vol
05/08/16   Indexing
"If you buy a 'low-volatility' fund, make sure you're comfortable paying a higher price. That's the warning that emerges from the surge in popularity of funds specializing in stocks that fluctuate less than the stock market as a whole."

Popular at a price
05/01/16   Indexing
"BlackRock hasn't just ignored the fee war. It has raised EEM's fee - a practically unheard move for an ETF. EEM used to charge 0.67 percent. Now it charges 0.69 percent - a rare case when a popular ETF charges more than (gasp) the average active mutual fund."

Minimum volatility investors beware
04/24/16   Indexing
"If the long-term benefits of Low Vol investing are actually associated with some sort of Value premium, then current Low Vol investors should beware. Valuation for Low Vol stocks is expensive. A once good idea has run its course. All of the research I have done or reviewed suggests that high current valuation leads to low future return. Valuations on Low Vol have risen substantially in just the last few years. Based on the PE ratio, USMV is 80% more expensive than it was when it launched. In a best case scenario, Low Vol seems destined for mediocre future returns. In a worst case, the correlations and volatilities underlying the ETF's holdings could change quickly, providing an unexpected return profile for investors whose expectations have been managed for downside protection."

The curse of the Dow
03/19/16   Indexing
"The so-called Curse of the Dow, an old Wall Street adage, holds that companies usually rally leading up to the day they join the blue-chip index, but then underperform in the year after."

How indexing changes indexes
03/12/16   Indexing
"Rat's tails and dead cobras were measures of progress against vermin overpopulation in Vietnam and India. But those measures then became the targets of enterprising citizens, and in the process ceased to be a good measures. In America, home ownership was a measure of quality of life and happiness, so it became a target, and we know how that ended. This is becoming a bigger and bigger problem in the stock market."

Index funds may work too well
07/25/15   Indexing
"I have a good laugh every now and then about the people who think that index funds should be illegal because they make companies less competitive, but honestly it's a nervous sort of laughter. Those people are up to something, something so big and interesting that it makes them nervous too."

In defense of active investing
06/28/15   Indexing
"To the extent investment experts continue to do the important work of advising clients on investment policies to achieve their true objectives and values and sustain their commitments through various markets, our profession will be appropriately admired and well rewarded."

Is it time to dump market-cap weighting?
02/20/15   Indexing
"We are not trying to say market-capitalization indexing is a bad thing, it is better than many of the alternatives out there. The problem we often see, however, is that investors do not realize how big of an allocation Canadian markets have toward a few industries."

Misfit stocks
02/07/15   Indexing
"These types of stocks have at least two advantages. First, well, they're neglected and underappreciated, which means investors have low expectations for them. Second, they often have depressed prices, which makes for a potentially favorable starting point."

Vanguard makes its move
10/11/14   Indexing
"You knew it was coming: Vanguard Canada has dramatically reduced the fees on 11 of its ETFs. The announcement came this week, and it affects some of the most popular funds in the Vanguard lineup"

The growing case against ETFs
02/23/14   Indexing
"Whether you are racing, cruising, stopping or crashing, safe driving comes down to a mix of equipment and personnel. The same can be said for mutual funds and exchange-traded funds, and while there is growing consensus that ETFs are the better vehicle, there's growing evidence that the people using them may not be so skilled behind the wheel. That's a real issue because a number of studies seem to indicate that the 'better' investment vehicle isn't delivering better results"

Why do ridiculous portfolios outperform?
01/18/14   Indexing
"Jason Hsu on why monkeys and upside-down portfolios produce better results than cap-weighting over time." [video]

Dilbert's investing gift
12/29/13   Indexing
"Don't dismiss it because Dilbert is just a world-famous comic hero. I'm here to authenticate it, to tell you this one-pager is no joke - it really is one of the best books on investing and personal finance you'll ever read. Moreover, it's actually less than one page, just 129 words, 9 simple points. Rarely has any financial writer ever been so darn succinct."

Index effect raises concerns
12/08/13   Indexing
"Goodhart's law was widely cited in the 1980s, when the UK government tried to control inflation by targeting the money supply. But policymakers found that as soon as they focused on a monetary aggregate such as M-3, the measure started to misbehave. The law is familiar to those in the indexing business, too. Investors have long been aware of the distortions that can arise when large volumes of money track or reference a particular measure of the stock market."

How low can prices go?
09/29/13   Indexing
"This is what it has come to in the ETF business after about 15 years in Canada: Companies are now competing with price cuts that amount to mere cents on a modest investment. Some may mock this as a sign the ETF business has run out of ideas to attract new customers, but not people who understand that low costs are one of the foundations of successful investing. Switch funds over a difference of 0.02 of a percentage point on fees? That's pointless. Put the fund with the lowest fees on your short list of places to invest new money? Definitely."

Confessions of an institutional investor
08/10/13   Indexing
"I've spent my entire career managing institutional portfolios for pensions, endowments and foundations. A few have used a simple, conventional approach while the majority have used the more complex, alternative model that is so popular these days. My current job is with a large fund that uses a complex approach with a focus on downside volatility and the use of hedge funds and private investments. This experience has cemented my opinion that the simple approach is just plain better."

Who should try to beat the market?
08/04/13   Indexing
"Instead, Zweig thinks Graham would have advised those who have an edge at stock-picking to do so, while recommending those who don't take a passive approach with index funds"

The active passive investor
05/12/13   Indexing
"Today, the more affluent investor's default strategy is - increasingly - indexing, inspired by the likes of John Bogle, Charles Ellis and William Sharpe. But I have often found that indexing advocates implement strategies that are quite a departure from the underlying theory they use to support their choices."

Vanguard total int'l bond fund
05/05/13   Indexing
"The latest filing provides additional details on the fund that.s designed to track the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (dollar hedged), and will tap into a universe of 7,000 high-quality corporate and government bonds from 52 countries."

Why do Value Investors like Indexing?
12/29/12   Indexing
"In general, most value investors like indexing. Buffett and many others agree on this. But why? 1) Most value investors that I have known want ordinary people to have an option of doing pretty well, without investing with them, because the minimums are too high - investing in index funds fits that... 2) The second reason is less noble. We like less competition."

When cheap funds cost too much
10/13/12   Indexing
"Exchange-traded funds have quickly become one of the cheapest and simplest investing tools in the world. They also are the raw material for an increasingly popular but potentially expensive and confusing way to invest."

Shiller launches value indexes
09/14/12   Indexing
"The new indexes look for cheap sectors based on this approach, finding those with low cyclically adjusted price-to-earnings, or CAPE. The numbers are persuasive. Using data going back to 1902, Mr. Shiller found that an investing strategy that focused on sectors with low cyclically adjusted price-to-earnings ratios outperformed by an average of 1.13 per cent a year."

New funds, old flaws
04/14/12   Indexing
"But you shouldn't confuse ETFs with a newer mutation called 'exchange-traded notes,' or ETNs. These instruments, 284 at last count, have gathered $133 billion in assets, nearly all in the past three years by comparison, 1,154 ETFs hold $1.1 trillion in total assets. The ETNs often track currencies, commodities and other assets rarely held by traditional ETFs - and can surprise unwary investors with high costs, quirky taxation and prices that may wander far from their asset value."

High-speed trading hurts ETFs
04/07/12   Indexing
"Maybe someone can explain to me how a trading system where virtually all the orders are canceled helps capital markets or investors. Key liquidity measures like bid/ask spreads and depth of book depend on order information. With high-speed trading, almost all of that information is false. In short, it seems to me that high-speed trading promises liquidity, but delivers something else entirely: market manipulation."

Hubble, bubble, index trouble
03/14/12   Indexing
"There's one final hypothesis we can derive from the index bubble effect. If this theory is correct it would mean that active fund managers have been faced with an almost impossible task over the past twenty years, because they've been battling the wall of money cascading into index trackers. In such an environment it would mean that the average quality of active managers has declined because it's impossible to discern who's good and who's not and would also suggest that all of the careful and clever studies designed to show how active management is hopeless are so much wastepaper. How ironic would that be: genuinely good active fund managers driven to the margins by index trackers, researchers wasting their time proving a general theory of active management failure undermined by an environment biased by flow of funds to index trackers while passive funds themselves are the subject of a behaviorally induced bubble, caused by investors seeking to escape the underperformance of said active managers. It's reflexivity writ large. Hubble bubble: modern finance is a witches' brew indeed."

If you pay peanuts for ETFs ...
07/11/11   Indexing
"Having crunched the numbers, Chris Flood over at FTfm points out that ETF providers may be generating profit margins that are more than four times higher than the traditional mutual funds industry - even despite the products being marketed as "low cost"."

Too much of a good thing
07/02/11   Indexing
"The number of ETFs has swelled to 2,747. Within equities, there are ETFs based on small-cap companies, value shares, individual industries and every conceivable combination of countries and regions. In bonds, there are ETFs linked to government, corporate and high-yield debt and paper of varying maturities. Some ETFs are based on commodity indices and property markets, others are designed to appeal to the environmentally conscious or to devout Muslims. There are leveraged ETFs which offer a geared return on a given index, inverse ETFs which aim to go down when a benchmark goes up (and vice versa) and, inevitably, leveraged inverse ETFs. For some, this is a worrying trend, with echoes of the subprime housing crisis, in which financial innovation went out of control. That crisis, too, had its origins in invention with a benign aim: the packaging of mortgages for use as securities for bonds was intended to reduce borrowing costs and disperse risk. Eventually, however, that simple idea transmuted into complex collateralised debt obligations and lower lending standards."

Systemic risks of ETFs
04/22/11   Indexing
"Crisis experience has shown that as the financial intermediation chain lengthens, it becomes complicated to assess the risks of financial products due to a lack of transparency as to how risks are managed at different levels of the intermediation chain. Exchange-traded funds, which have become popular among investors seeking exposure to a diversified portfolio of assets, share this characteristic, especially when their returns are replicated using derivative products. As the volume of such products grows, such replication strategies can lead to a build-up of systemic risks in the financial system. This article examines the operational frameworks of exchange-traded funds and identifies potential channels through which risks to financial stability can materialise."

Celebrating 75 Years Of Sloth
02/08/11   Indexing
"Wharton professor Jeremy Siegel pointed out in his 2005 book, The Future for Investors, that the original S&P 500 stocks in 1950 outperformed the annually reconstituted index from 1950 through 2003. Interestingly, many of the largest stocks from the original S&P 500 Index are also in this fund's portfolio, including ATandT, ExxonMobil, and DuPont (DD). The fund's winning streak has continued since 2003, too, as it has beaten the S&P 500 Index by 2.5 and 1.5 percentage points annualized over the trailing five- and 10-year periods, respectively. The fund has benefited from the same dynamics that have powered the returns of the original S&P 500 constituents. In fact, the fund has returned an annualized 11.1% since 1970 (which is as far back as our database goes) versus 9% for the S&P 500. It has also beaten the 17 actively managed equity funds introduced in 1935 or earlier."

Are ETFs a Menace?
11/12/10   Indexing
"The proliferation of ETFs, the report contends, raises at least three worries. First, these funds have overconcentrated the ownership of thinly traded stocks. Second, they have led to an escalating number of trading failures. Third, ETFs could trigger another massive market swing like the May 6 'flash crash.'"

The Hidden Costs of Indexing
10/27/10   Indexing
"Petajisto estimated that from 1990 to 2005 the annual turnover drag for the small-cap Russell 2000 was at least 0.38%-0.77% and for the S&P 500 at least 0.21%-0.28%. Researchers Honghui Chen, Gregory Noronha, and Vijay Singal in a 2005 paper estimated the cost of index turnover drag at 1.30%-1.84% for the Russell 2000 and at around 0.03%-0.12% for the S&P 500. These figures imply that index funds that don't slavishly follow the index can beat their benchmarks by avoiding the price pressure surrounding index additions and deletions. It's one of those rare free lunches in investing."

Hidden Cost for Index Funds
10/27/10   Indexing
"This paper empirically investigates the index premium and its implications from 1990 to 2005. First, we find that the price impact has averaged 8.8% and 4.7% for additions to the S&P 500 and Russell 2000, respectively, and -15.1% and -4.6% for deletions. The premia have been growing over time, peaking in 2000, and declining since then. Second, the implied price elasticity of demand increases with firm size and decreases with idiosyncratic risk, supporting theoretical predictions. Third, we introduce a new concept that we label the index turnover cost, which represents a hidden cost borne by index funds (and the indexes themselves) due to the index premium. We illustrate this cost and estimate its lower bound as 21-28bp annually for the S&P 500 and 38-77bp annually for the Russell 2000."

A closer look at BetaPro's HXT
10/09/10   Indexing
"In a recent blog post, I provided an overview of the new Horizons BetaPro SP/TSX 60 Index ETF (HXT/TSX). HXT's synthetic exposure left us with two questions, both of which are addressed below."

Economic Consequences of Index Investing
09/22/10   Indexing
"Trillions of dollars are invested through index funds, exchange-traded funds, and other index derivatives. The benefits of index-linked investing are well-known, but the possible broader economic consequences are unstudied. I review research which suggests that index-linked investing is distorting stock prices and risk-return tradeoffs, which in turn may be distorting corporate investment and financing decisions, investor portfolio allocation decisions, fund manager skill assessments, and other choices and measures. These effects may intensify as index-linked investing continues to grow in popularity."

Beware of professors bearing ETFs
09/12/10   Indexing
"But while market research by these scholars has helped shape how firms design hundreds or thousands of portfolios, the particular investments created by the academics themselves haven't always performed well."

iShares ETFs becoming more expensive
05/05/10   Indexing
"BlackRock Asset Management is sending a notice to unitholders of iShares exchange traded funds that, effective July 1, 2010, the management expense ratio of a long list of iShares Funds are increasing by 0.01% to 0.03%"

ETFs running off in all directions
05/01/10   Indexing
"I sympathize with marketers, who need new features to differentiate themselves from competitors. My fear is that like many 20-year-olds who are out trying new things for the first time, they will make mistakes, maybe write off a few cars, maybe worse. In this case, though, this 20-year-old will be using your money."

ETF clutter
04/17/10   Indexing
"For starters, when investors are looking for "simple and transparent," ETFs are no longer the default. There still are many clean, easy-to-understand ETFs to be had, but they're harder to find among the proliferation of new products. Indeed, ETFs no longer take a back seat to closed-end funds or mutual funds when it comes to complexity, opaqueness and fine print."

ETFs were off the mark in 2009
02/19/10   Indexing
"In 2009, ETFs missed their targets by an average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they posted in 2008, according to a study of ETF returns released this week by Morgan Stanley."

Maida runs new AlphaPro ETF
02/10/10   Indexing
"Mr. Maida, who will pick stocks for HAP North American Value ETF HAV-t , is the founder of investment counselling firm Patient Capital Management Inc. that caters to institutional and wealthy clients. In 1999, he left Trimark Financial Corp. where he ran the giant Canadian stock funds."

ETFs may hide tax surprise
02/09/10   Indexing
"Do your research. You really do need to read the fine print in an ETF's prospectus. Ary Rosenbaum, an associate attorney with the law firm of Meyer, Suozzi, English & Klein says there are three questions to ask yourself: "What is the capital gains treatment of the ETF? What is the tax implication of the ETF that may influence end of or beginning of the year tax strategy? And if the ETF is not plain vanilla, what are the tax rules for the underlying assets within the ETF?""

Free for a fee
11/02/09   Indexing
"I present and test a rational expectations model consistent with the finding that active funds underperform index funds by an amount roughly equal to their fees. Investors receive privately observed wealth shocks that cause them to rebalance. These shocks also induce noise in stock prices through a wealth effect. As a result, investors tend to buy in and out of index funds at the wrong time, failing to attain the buy-and-hold return of the index fund. Empirically, looking at individual as well as aggregate fund returns, I find that taking into account the timing of investment can account for most of the buy-and-hold advantage of index funds."

Tax plan could cripple industry
09/21/09   Indexing
"Exchange-traded fund companies are warning higher taxes could wipe out the $25-billion industry, as cost-conscious investors take their money to the U.S and buy the same products for less."

Leveraged ETFs
09/10/09   Indexing
"In fact, some of the common myths and criticisms surrounding double ETFs are based on a simple misunderstanding of their intended exposures. While some have expressed frustration about the lack of tracking of holding period returns, it's important to realize that tracking holding period returns risks losing more than 100% of the original capital. BetaPro's structure, which is rebalanced daily, is needed to limit losses to 100% in a double ETF and provide investors with non-recourse exposure. When measured against their intended daily exposures, BetaPro double ETFs have seen excellent tracking of their target benchmarks. Longer holding periods, however, have been observed with good tracking of index holding period returns. Volatility and a couple of other factors, however, will ultimately determine tracking of holding period returns."

The three-dimensional portfolio
08/16/09   Indexing
"Here's a mind-blowingly simple answer to the basic but crucial question of how many securities are required for a properly diversified portfolio. Three. You read that right. If you're portfolio building with exchange-traded funds (ETFs), three are all you need for a lifetime of diversified investing."

It's easy to front-run a TIPS ETF
08/16/09   Indexing
"Seeking a safe haven from inflation, this year investors have stashed $5.6 billion into the iShares Barclays Treasury Inflation Protected Securities ETF (TIP). Problem is, this ETF may not be the safe haven they expect."

Gone for a Burton
07/30/09   Indexing
"Over the 20 years to end-December, 68% of all active US large cap funds underperformed the S&P 500 index (over 10 years, it was 64%). The underperformance, relative to Vanguard's S&P 500 index fund, was around 0.9% a year."

Exotic ETFs are toxic ETFs
06/27/09   Indexing
"Just as the exotic charms of Cleopatra confounded Julius Caesar, the foreign wiles of Delilah did for Samson and the mystique of Heather Mills. fake leg ensnared Paul McCartney, so the mysterious allure of the exotic ETF is undermining the original purpose of these investment vehicles. As usual the investment industry has worked its magic and turned a really useful investment tool into a method for speculating in snake oil."

Investors are getting killed in ETFs
06/18/09   Indexing
"A new analysis by Vanguard Group founder John Bogle indicates that investors are generally making poor decisions when buying and selling exchange-traded funds."

Know what you own
06/15/09   Indexing
"While the rest of the investment industry (open-end and closed-end funds) comes under consistent scrutiny, the ETF industry to-date has largely escaped a hard look. However those times just might be changing."

Is Vanguard sailing in uncharted seas?
06/14/09   Indexing
"What on earth was Vanguard thinking? That is what investors in Vanguard Group, the nation's largest mutual-fund company by assets under management, have been asking ever since Vanguard emerged as one of the bidders for the iShares family of exchange-traded funds last month."

Currency hedging
06/13/09   Indexing
"For the 12 months to June 4, XSP lost 35.6 per cent and the S&P 500 gave up 31.6 per cent. Over the past three years, XSP's cumulative loss of 30.8 per cent was about five percentage points worse than the index."

Nine basis points!
06/03/09   Indexing
"Has anyone noticed that Pimco, as of yesterday, is offering (now higher-yielding, lower-priced) short-term U.S. Treasuries at an expense ratio of 9 bps (0.09%)?"

Shorting leveraged ETFs
05/25/09   Indexing
""Rebalancing on a daily basis is beneficial if a market trends. You're going to end up with returns greater than two times, you're going to get a compound effect. You'll see returns going up and compounding daily," Atkinson says. "There have been periods where we've seen four to six times the index return over a one year period because the market was generally in one direction. We're giving you two times the leverage, but you never lose two times the exposure. We're reducing the exposure as the market moves against you.""

Just buy everything
05/11/09   Indexing
"Ideally, you would have poured money into these funds when markets hit a multi-year low on March 9, but investor timing is notoriously horrible, Rothery said, noting that investors lose between three and five percentage points or more a year from trying to time the market. "They would have been better off, if they're index-oriented, to just stick with an index and go to sleep.""

Long term performance of leveraged ETFs
03/25/09   Indexing
"In this paper, we study leveraged ETFs, in particular, Ultra ETFs and UltraShort ETFs from the ProShares family. These Ultra (UltraShort) ETFs are designed to provide twice (twice the opposite) of the performance of the benchmark on a daily basis. We focus on the relation between long term performance of leveraged ETFs and benchmarks. Our results show that over holding periods no greater than one month, an investor can safely assume that the Ultra (UltraShort) ETF would provide twice the return (twice the negative return) of the underlying benchmark. Over the holding period of one quarter, the UltraShort ETFs can deviate from twice the negative returns of the benchmark. For Ultra ETFs, this deviation occurs when the holding period is one year. Overall our results show that leveraged ETFs are not long term substitutes for long or short positions of the benchmark indices."

Market woes hit newer ETFs
12/08/08   Indexing
"The market mayhem hasn't stopped fund companies from rolling out scores of new exchange-traded funds this year. But it has made it tough for many of these young funds to gain traction, and that could mean trouble for investors."

Some ETFs fall short on pricing
11/21/08   Indexing
"For the thinly traded ETFs, many of the most problematic trades seem to take place moments after the market opens. For example: On Nov. 14, an investor sold 500 shares of First Trust S&P REIT Index ETF for $8.18 -- about 12% below the value of the fund's underlying holdings -- at two seconds past 9:30 a.m. EST. Three minutes later, 1,000 shares sold at a price about 3% below. By 10 a.m. the discount had settled to about 1%."

S&P 500 index: now more poor, less standard
11/21/08   Indexing
"Every once in a while the committee faces a rare situation where a large portion of the S&P 500 Index does not meet one or more requirement they have outlined. Usually the simply ignore it and hope that it just goes away on its own."

Complex and pricey
11/19/08   Indexing
"The fund holds a motley collection of 21 ETFs and fully three make up less than 1% of the portfolio. Compare the complexity of this fund with the simplicity of the ING Streetwise Balanced Fund, which has 40% in bonds and 60% split equally among Canadian, U.S. and other developed markets."

New ETFs can serve as caution signs
10/30/08   Indexing
"There are many notable exceptions, but all too often an ETF's debut coincides with the moment when investors should be starting to think about taking profits in the area of the fund's focus. As is evident in the table below, this isn't a new phenomenon. In 1996, the incipient ETF industry was bolstered by the addition of a quartet of Asian funds. Just 16 months later, Asian currencies nosedived and stock prices throughout the region collapsed, kneecapping investors with double-barreled blasts."

Tumult jars bond-tracking ETFs
09/26/08   Indexing
"Exchange-traded funds that track bonds have been running into trouble trading at prices that match their underlying values, raising questions about one of their key promises to investors."

An active value strategy in disguise
08/27/08   Indexing
"In this paper we critically examine the novel concept of fundamental indexation. We argue that fundamental indexation is by definition nothing more than an (elegant) value strategy, because the weights of stocks in a fundamental index and a market capitalization-weighted index only differ as a result of differences in valuation ratios. Moreover, fundamental indices more resemble active investment strategies than classic passive indices, because (i) they appear to be at odds with market equilibrium, (ii) they do not represent a buy-and-hold strategy and (iii) they require several subjective choices. Last but not least, because fundamental indices are primarily designed for simplicity and appeal, they are unlikely to be the most efficient way of benefiting from the value premium. Compared to more sophisticated, multi-factor quantitative strategies, fundamental indexation is likely to be an even more inferior proposition."

The prescient are few
07/13/08   Indexing
"The researchers found a marked decline over the last two decades in the number of fund managers able to pass the False Discovery Rate test. If they had focused only on managers running funds in 1990 and their records through that year, for example, the researchers would have concluded that 14.4 percent of managers had genuine stock-picking ability. But when analyzing their entire fund sample, with records through 2006, this proportion was just 0.6 percent - statistically indistinguishable from zero, according to the researchers."

Equal weight indexing: five years later
06/28/08   Indexing
"Often the most powerful investment ideas are simple. The simple concept of equal weighted indexing has attracted billions of dollars in assets in last five years. While the headline cause of asset flows has been outperformance over market capitalization indices, sophisticated investors have realized that equal weighting creates a different set of risk factor exposures than market capitalization weighting that seem to work over the long term. Further, the concept randomizes factor mispricings in the market. As trading costs shrink globally, and as investors realize that turnover of equal weighted indexing is only about a fifth of active managers, we expect the concept to gain ground. Equal weighting has been used in fixed income indexes to a certain degree, and given the results of it working in international markets, we would not be surprised to see interest in equal weighted international products."

Do-it-yourself ETF may not be worth your time
06/28/08   Indexing
"Is the war against money management fees going too far? Investors - the more enlightened ones anyway - have battled high fees for years, forcing the industry to parry with low-cost index mutual funds and exchange-traded funds as well. Now, spurred by ultra-low trading commissions, some investors and financial planning pundits are aiming their guns at ETFs, arguing that you can dispense with them and create your own index funds, under certain circumstances, such as having a big enough portfolio. The arguments make sense on paper, but they're not without their shortcomings. The reality is that ETFs are pretty hard to beat if you want to invest in an index." [Fabrice makes a couple of good points and a few lousy ones. But here's his take on unbundling ETFs.]

'Lazy Portfolios' for stagflation
06/13/08   Indexing
"If you don't have a Lazy Portfolio now is the time to build your own using the eight models below. And remember, back in the bad old days of the 2000-2002 bear-recession, one of them, the Coffeehouse, was killing the S&P 500 by 15 percentage points each of the three years -- more proof passive investing beats action. You also don't need a lot of funds with this strategy. That's important if you're young, new at the game or just don't have a lot of money to invest and can't afford to plunk down the $33,000 for the initial investments in an 11-fund portfolio. So let's look at the smaller portfolios first to prove the point. Here's a comparison of the bottom lines of all eight Lazy Portfolios."

Why you're not a rational investor
11/07/07   Indexing
"We like to think we make investment decisions based on facts. But we often end up paying to express our beliefs, to acquire status, or to seem smarter than our peers."

ETFs for everyone. Even dermatology investors
04/23/07   Indexing
"The ETF business today is a circus. Close to 100 new ones have been listed for trading on North American exchanges so far this year, compared with 170 in all of last year and about 60 in 2005. It's quite a change from the early days of ETFs a decade ago, when there was only an obscure handful of these index funds that trade like a stock. ETFs began by tracking major global stock indexes such as the S&P 500, the Nasdaq 100 and the S&P/TSX composite (and its predecessor, the TSE 300 index). Today, with a choice of funds for virtually all major indexes, ETF providers are turning to more exotic products to build their franchises."

ETFs: A user's guide
02/08/07   Indexing
"There's nothing Wall Street loves more than having a new product to peddle, and exchange-traded funds (ETFs) have been one of the most popular offerings of the new century. Last year no fewer than 156 new ETFs hit the market; today, the total is about 400. The pace is set to pick up this year when the Securities and Exchange Commission streamlines the approval process. And ETF sponsors are hoping to make them available in 401(k)s, which would give them a much broader audience. So with all the hoopla surrounding ETFs, you may feel you have to have one - or collect the whole set! But as you would with any novelty from Wall Street, give ETFs a careful look before plunging in."

The weird world of ETFs
02/08/07   Indexing
"Exchange-traded fund launches are quickly becoming as routine as the launches at Cape Canaveral. Fund companies rolled out 155 new ETFs in 2006, according to Boston consultancy Financial Research Corp. As new products hit the market, the nature of the products is changing. Best known as cheap, tax-efficient portfolio diversifiers, ETFs now provide exposure to even the narrowest - and sometimes most outlandish - investment niches."

New ETFs will whet your appetite
11/18/06   Indexing
"Let 2006 go down as the year that diversity finally came to the achingly bland Canadian ETF market. Not a lot of diversity, mind you. We now have 27 exchanged-traded funds listed on the Toronto Stock Exchange, compared with about 350 in the United States and dozens more to come. But with the introduction of nine new ETFs in the past couple of months, things are looking up for Canadian investors who like the low cost and flexibility of these index funds that trade like a stock."

Index changes and losses to index fund investors
09/28/06   Indexing
"We showed that index fund investors lose a significant amount because of the predictability and timing of index changes coupled with fund managers' objective of minimizing tracking error. The loss to an investor in the Russell 2000 may be about 130 bps a year and can be as high as 184 bps a year, and S&P 500 investors may lose as much as 12 bps a year. Consistent with this finding, we found that the Russell 2000 underperformed other small-cap indices by more than 3 percentage points a year in the 1995-2002 period, even though comparable indices did not entail greater risk. Moreover, the underperformance was concentrated in months surrounding the annual reconstitution of the index."

09/05/06   Indexing
"They're red-hot these days because folks assume they are cheaper than funds. That's not always true. And some of the things ETFs track are getting a bit loopy. Here's what to watch out for."

Seeking sanity amid a market of ETF mania
08/05/06   Indexing
"There's a slightly crazed, peak-of-the-market feeling to the gusher of new exchange-traded funds being issued these days."

Investors choose high-fee index funds
06/02/06   Indexing
"But the students "overwhelmingly fail to minimize index fund fees," the researchers write. "When we make fund fees salient and transparent, subjects' portfolios shift towards lower-fee index funds, but over 80% still do not invest everything in the lowest-fee fund." In fact, the mean fee paid by the students was 1.22 percentage points above the minimum they could have paid -- enough to dramatically reduce long-term gains." Warning: irrational investors at work.

Fundamental indexing and the three-factor model
05/25/06   Indexing
"Fundamental indexing is a promising technique, but its advantage over more conventional cap-weighted value-oriented schemes, to the extent that it exists at all, is relatively small."

Commodity wary? Try custom indexing
05/14/06   Indexing
"Just remember that with indexing, you're buying the market. Where the S&P/TSX composite index is concerned, you have an approximate 45-per-cent weighting in energy and materials, which includes metals and gold stocks. With the S&P/TSX 60 index of big blue chips, you have 41-per-cent exposure to commodities. For investors willing to sacrifice a bit of upside to limit downside, this is too much."

ETFs: 5 smart strategies
05/07/06   Indexing
"Exchange-traded funds can cut your investment costs, lower your tax bill and simplify your life. Just make sure you handle them with care."

Barclays announceschange from iUnits to iShares
04/30/06   Indexing
"Barclays Global Investors Canada Limited ("Barclays Canada") announced plans today to change the name of its Toronto Stock Exchange-listed family of exchange-traded funds (ETFs) from iUnits to iShares. Leveraging the strength of the iShares product line around the world, Barclays Canada will be aligning its ETF brand identity with its global counterparts."

ETFs: The cheap, the dear and the fairly valued
04/16/06   Indexing
"Looking for bargains in a fairly valued market? Look beyond Asian and real estate stocks and toward mega-cap equities. And though energy stocks don't seem as overvalued as they were at the end of 2005, they still aren't a great deal."

It's better to do it yourself with ETFs
04/08/06   Indexing
"A persuasive case can be made that indexing as carried out with ETFs is an ideal strategy for do-it-yourself investors. By tracking the major indexes and avoiding the advice costs folded into mutual funds, it's possible to make returns that compare favourably with most mutual funds. But the appeal of indexing is diminished, if not nullified, when the cost of advice is added in."

Foreign ETF Fee-ver
04/03/06   Indexing
"EWW is not cheap; it's a stretch to call it "diversified;" and its two biggest holdings can be bought on the New York Stock Exchange. I even wonder how much it has to do with Mexico. Cemex, for example, is a wonderful cement company, but its operations are so global these days that I'm not sure I'd call it a "Mexican" company, except with respect to its history and domicile. EWW seems like an investment product desperate for an identity."

Making the most of Vanguard's VIPERs
03/25/06   Indexing
Given its indexing expertise, Vanguard is a natural fit for the ETF market, which is a focus of growth for the firm. To attract more interest, Vanguard has broadened its slate of VIPERs to 23, and more are certainly on the way.""

ETFs claiming superior stock selection draw fire
02/14/06   Indexing
"Call it the Battle of the Eggheads. The latest upstart in the evolving exchange-traded fund business is a set of ETFs linked to indexes that claim superiority over standard market benchmarks. Proponents of these new measures say their sophisticated, proprietary strategies can identify winning stocks. Not everyone agrees."

An intriguing twist on stock indexing
02/05/06   Indexing
"Equal weighting is a strategy that gives the same importance to each and every stock in an index. In the case of the popular Standard & Poor's 500-stock index, that means equal weight for stocks from giants Exxon Mobil and General Electric all the way down to computer maker Gateway and auto-parts supplier Dana, lately 499th and 500th in terms of corporate stock-market value, or capitalization. For years, this approach has been quietly outperforming the well-known S&P 500 indexed offerings that dominate the mutual-fund industry -- the funds you probably own, where big companies affect returns more than small ones."

So many RRSP choices. What to do?
01/29/06   Indexing
"ETFs are beyond simple to use, but they're also a durable, sensible building block for RRSPs. Their ongoing ownership costs are a small fraction of what comparable mutual funds charge, and they deliver the returns of the indexes they track, minus fees. If you compare the returns of mutual funds to those indexes, you'll find that many underperform in the short or long term, and sometimes both."

Index ETFs: watch your weight
01/10/06   Indexing
"Unlike most S&P index funds, which are market-cap weighted, the Rydex S&P Equal Weight Fund offers greater exposure to undervalued stocks"

Barclays Canada announces four new ETFs
12/24/05   Indexing
"XTR will replicate the performance of the S&P/TSX Income Trust Index. XDV will replicate the performance of the Dow Jones Canada Select Dividend Index. The fund will focus on investing in stocks with higher yields and proven dividend growth and sustainability. XRB, which is designed to proved fixed income investors with inflation protection, will replicate the performance of the Scotia Capital Real Return Bond Index."

ETFs are performing well at a lower cost
12/12/05   Indexing
"Name a mutual fund category and I'll show you its slimmer, more athletic alter ego."

TD plans to terminate ETFs
12/12/05   Indexing
"Effective December 13, 2005, subscription orders for new units of the Funds will no longer be accepted. Redemption orders for baskets of shares and for cash will be processed until termination date, on or about March 13, 2006. The outstanding units of the Funds will continue to be listed and posted for trading on the TSX. Units may be purchased or sold on the TSX in the ordinary course of business until the close of market on the termination date, either through registered brokers or participating dealers."

Plenty of room for improvement
12/01/05   Indexing
"Swensen counsels that intelligent investment behavior begins with a priority on asset allocation that rests on the bedrocks of diversification, equity orientation, and tax sensitivity. People should have realistic expectations, however, and remember that, while 200 years of data suggests the superior return advantage of equities, from 1921 to 1996 dividends provided the major part of equities' 4.3% real average annual return."

When index funds go bad
11/11/05   Indexing
"The results indicated that, as with most active funds, investors' timing decisions were costly when it came to index funds. The dollar-weighted returns for virtually all large-cap index funds were worse than their official returns for the trailing 10-year period through the end of the third quarter 2005. As the table below shows, poor timing cost Vanguard 500 shareholders 2.7 percentage points of returns per year over the past decade."

ETFs provide access to the world of bonds
11/06/05   Indexing
"It's never easy to buy bonds in small, retail-sized amounts without getting hosed a couple of points in commission. It's not that dealers are trying to rip you off, it's just that it costs a dealer about $50 just to write a ticket; so on, say, a $5,000 bond purchase, the transaction costs alone are a point, and your broker, er, account executive, needs to get paid something, too."

Barclays muscles in to zap TD's last advantage with ETFs
10/16/05   Indexing
"Barclays dominates the ETF business in Canada to the extent that TD is very close to invisible. But while Barclays has offered ETFs for investing in the blue-chip S&P/TSX 60 index, it had nothing for investors who wanted to buy into the much broader S&P/TSX composite (200 stocks versus 60). Now, Barclays is about to neutralize TD's one small advantage."

S&P/TSX index outpaces managed funds
08/14/05   Indexing
"Annual management expense ratios of 2.5 per cent "are a huge hurdle for any manager, no matter how skilled they are, to consistently have to overcome to deliver value-added over and above what a[n] . . . indexing strategy delivers," Mr. Silgardo said."

First style-based international ETFs
08/06/05   Indexing
"Barclays Global Investors announced today that the iShares MSCI EAFE Value Index Fund and the iShares MSCI EAFE Growth Index Fund began trading on the New York Stock Exchange. Each fund's expense ratio is 0.40%. These exchange traded funds (ETFs) are the newest additions to the largest international ETF product line in the U.S."

Variance among U.S. equity indexes
06/08/05   Indexing
"Financial planners often are called upon to select equity market indexes against which their clients' portfolios might be measured. As will be shown in this paper, the choice of which equity market indexes are chosen as benchmarks can make a sizable difference in the comparison of performance. In light of this, one should be aware that "benchmark index shopping" is a potential hazard in a world where comparison of performance is widespread. More bluntly, it is possible that a mutual fund company (or financial planner) might shop for a benchmark that had the worst performance relative to their fund or portfolio, precisely to make their own fund(s) or portfolio(s) look better."

The cost of AA programs
05/15/05   Indexing
"For about a decade now, various investment companies have been cranking out marketing material quoting the academic work done in the 1980s and 1990s done by a team of researchers led by Gary Brinson and studying asset allocation and variance for large US pension funds. Most get it wrong."

The diversified dividend aristocrats
05/08/05   Indexing
"Since the passage of the 2003 dividend tax cut, investors have flocked to dividend funds and indexes like pigeons to popcorns. Consider the iShares Dow Jones Select Dividend Index Fund (DVY): Introduced in November of 2003, DVY has been one of the fastest growing exchange-traded funds (ETFs) of all time, and now boast assets of over $6 billion."

The index to end all indexes?
05/01/05   Indexing
"the ratio between equities and fixed-income investments varies widely over time. At the heart of the equities boom (March 2000), equities made up 67 percent of the index; at the depths of the recent bear market (March 2003), they represent just 43 percent of the index."

Sharpen the pencil when picking ETFs
03/29/05   Indexing
"Index investors, it's time to review your use of two exchange-traded funds that provide easy access to the U.S. and international stock markets."

Halfway there
03/23/05   Indexing
"The biggest change to hit the S&P 500 Index in modern history got underway at the close of trading on March 18, when Standard and Poor's (S&P) took the first of two steps in transitioning its broad U.S. index family to the free float weighting system."

There are better ETFs than the snappy i60
03/13/05   Indexing
"Meantime, there are several ETFs that have delivered much stronger returns over the past three years and thus deserve some attention. One of the most appealing -- with some reservations -- is TD Select Canadian Value, which has a very solid three-year average annual return of 12.4 per cent. The comparable Canadian equity fund averaged 9.1 per cent in the period."

Vanguard to introduce international VIPERs
03/10/05   Indexing
"The new VIPER Shares will feature expense ratios as low as 0.18%, which are considerably below the expense ratios of the 43 international exchange-traded products available on the market today."

The relentless rules of humble arithmetic
03/03/05   Indexing
"Warren Buffett's crusty but wise partner, Charlie Munger, is disturbed by the commitment of so many exceptional people to the field of investment management: "Most money-making activity contains profoundly antisocial effects. (As high-cost modalities become ever more popular), the activity exacerbates the current harmful trend in which ever more of the nation's ethical young brain-power is attracted into lucrative money-management and its attendant modern frictions, as distinguished from work providing much more value to others." As Mr. Munger recognizes in the field of money-making, as far as the interests of clients go, there can be no net value added, only value subtracted."

Funds: The limits of indexing
02/15/05   Indexing
"Index funds are efficient, cheap and easy, but they aren't perfect."

Vanguard's switch
02/01/05   Indexing
"Vanguard said its preliminary analysis indicates the transition to the MSCI benchmark is not expected to result in capital gains distributions for shareholders, although transaction costs will be incurred as a result of turnover. "Vanguard picked a good time to do this," said Jim Wiandt, publisher of "The move won't have big tax consequences because the fund is sitting on losses from the past few years." "If Vanguard waited and there was a big run in the market, it would be more difficult to do without triggering tax consequences," Wiandt added. Over the past five years through Jan. 31, Vanguard Total Stock Market Index fund has lost 1.1 percent annually, according to investment research firm Morningstar."

Vanguard's new target benchmark
02/01/05   Indexing
"The MSCI US Broad Market Index includes equity securities with primary listing on the New York Stock Exchange, American Stock Exchange, and Nasdaq. The index incorporates Vanguard's view of "best practices" in index construction"

Indexing makes sense -- but not with mutual funds
01/30/05   Indexing
"The trouble here is not the concept of index investing. We can argue forever about whether it's better to own actively managed funds or funds that track the major stock indexes, but indexing does makes sense. Unless you use index funds. Costly to own, they're a distant second choice behind exchange-traded funds as a way to put the indexing strategy to work."

It's time for investing spotlight to shine on ETFs
01/02/05   Indexing
"Fee cuts by Fidelity and others in 2004 are welcome and they'll do good things for investors. But if attention is being focused on fees in general, then ETFs get the glory because of their exceptionally low management expense ratios. You can get into the S&P/TSX 60 or composite indexes through ETFs with MERs of 0.17 per cent and 0.25 per cent, respectively, or pay an average 2.4 per cent for a widely held Canadian equity fund."

Money for nothing
12/06/04   Indexing
"Should you care about the near-futility of active management? If your time horizon is only a few years, no. Over this period, the cost drag won't amount to much, and you might as well play a few spins of the active-management roulette wheel (some funds do beat the market, and hope springs eternal). If you're investing for the long term, however, you should care a lot. On average, active funds underperform passive funds by about a percentage point a year (or more). Over 20 years, assuming 10 percent annual appreciation, this difference will eat nearly a fifth of your return. Over 40 years, it will gobble almost a third."

S&P index versus active funds scorecard
12/06/04   Indexing
"The Standard & Poor's Index Versus Active (SPIVA) methodology is designed to provide an accurate and objective apples-to-apples comparison of funds' performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages, include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study, and show style consistency for each style group across different time horizon"

S&P launches Canadian fund scorecard
12/06/04   Indexing
"Survivorship bias can significantly skew results as funds liquidate or merge. The five-year survivorship is 71.5%, 67.7% and 70.1% for Canadian equity, U.S. equity and Canadian small-cap mutual fund categories, respectively. For example, only 71.5% of the mutual funds offered five years ago in the Canadian equity category in Canada remained at the end of the period- the other 28.5% were either wound up or merged with other funds."

New ETF brings you the whole bond universe
11/21/04   Indexing
"Barclays Canada, the company behind the iUnits series of Canadian exchange-traded funds, announced yesterday that it wants to convert its 10-year government bond exchange-traded fund into a new product that tracks the Scotia Capital Universe Bond Index."

Why your index fund is lagging the market
11/07/04   Indexing
"Why should market cap be the best way to assign G.M.'s weight in an index? The conventional academic response is that investors, in their collective wisdom, determine the company's value. But investors sometimes make spectacular mistakes. During the bubble of the late 1990's, cap-weighted benchmarks assigned far too much weight to Internet stocks. As a general rule, in fact, cap-weighted indexes overweight stocks that have become expensive because of fads, and underweight unfashionable ones. This leads such indexes to under-report the market's true return."
11/05/04   Indexing
"When it comes to investing, there's a world of difference between good advice and advice that sounds good. The vast majority of personal finance commentary, both online and in the "dead-tree" world, certainly sounds good enough -- "put all your retirement money in stocks," or "aggressive growth funds are the place to be," or "small stocks return more than large stocks." But there's something odd about this kind of advice: It's always asserted as if it's true, and yet its truth is never proven. Unfortunately, you can't afford to take investing advice on faith. To prosper in the long run, you've got to be able to separate the good advice from the advice that just sounds good. My goal here is to help you do that."

Index funds best way to go for a little Americana
11/05/04   Indexing
"Whether you're rejoicing or retching over the U.S. election results, there is one investing fact that stands out: Accounting for just over half of the global stock market, the United States is a must-have in your portfolio."

Can active management beat index funds?
10/26/04   Indexing
"The best course may run counter to popular thinking."

Build wealth in any market
10/11/04   Indexing
"So many investors -- maybe even you -- bought into some wild notions about stocks in the headiest days of the bull market. Today, perhaps a bit poorer, you're certainly wiser."

Canadian fund firms should follow U.S. lead
09/23/04   Indexing
"Fidelity Investments, the largest U.S. fund company, recently took a run at indexing powerhouse Vanguard by slashing the management expense ratios on five index funds to 0.10 per cent from between 0.19 and 0.47 per cent. The on-line broker E*Trade then made things even more interesting by lowering the MER on two in-house index funds to 0.09 per cent. If you follow index funds in Canada, you'll want to weep. The largest Canadian index fund by far, CIBC Canadian Index, has an MER of 0.96 per cent, while second-ranked TD Canadian Index is at 0.85 per cent and third-ranked RBC Canadian Index is at 0.84 per cent. The best bargain available is the "e" version of TD's fund -- it has an MER of 0.31 per cent but is available only over the Internet directly from TD."

A primer on stock-market averages and indices
08/13/04   Indexing
"This measure began when Charles Henry Dow, the co-founder of Dow Jones and Company in 1882, devised an average to better see broad-market movements from the daily ups and downs of individual stock prices. The first Dow average appeared July 3, 1884 in the Customer's Afternoon Letter, a two-page market letter first published by Dow Jones in November 1883. At the time, the average was comprised of only 11 stocks, 9 of them railroad-related reflecting the relative importance of the rail industry in the economy at the time."

ETF tracking error needs improvement
06/30/04   Indexing
"iShares ETFs have not performed quite as well as Vanguard conventional mutual funds with the same target index, three new studies show. Vanguard's funds have generally beaten the indexes, while iShares have slightly underperformed them."

Taking your portfolio abroad
06/16/04   Indexing
"Watch those costs. Pay special attention to expenses and fees, which are generally higher in foreign funds than domestic funds."

Index fund investment is simple, stress-free
06/13/04   Indexing
"The perennial gripe against index funds is that they're just average. Would you want to send your kid to an average pediatrician? Or have your transmission overhauled by an average mechanic? What's ironic about index funds, however, is that investors who settle for average market performance will usually end up richer than the investors who stick with portfolio cowboys who aim for shoot-out-the-lights returns."

To tilt or not to tilt
06/06/04   Indexing
"At the end of the day, the gap between low-cost open-end index funds and ETFs is a crack in the sidewalk. The gap between either of these and the average actively managed fund is the Grand Canyon."

Fees upon fees
05/21/04   Indexing
"One of things that can be really insidious if left unchecked, however, are the fees on fees associated with a number of so-called 'actively managed' mutual funds."

A better way to invest
04/25/04   Indexing
"The approach to investing suggested in this guide, equally valuable for mainstream and wealthy investors, has been made possible by exchange-traded funds and the Internet (specifically online brokerages). Exchange-traded funds provide diversification and ease of management at remarkably low cost. The Internet cuts costs, removes intermediaries, and empowers the customer."

Index fundamentalism revisited
04/01/04   Indexing
"we find that whether index funds or managed funds are the superior buy depends on the time span in question, but that managed funds almost always have a lower standard deviation of return than index funds."

Hoodwinking innocent investors
03/24/04   Indexing
Norbert Schlenker, president of Libra Investment Management, had the following things to say in response to Kevin Cork's March 24th column at The Fund Library entitled The Tragic Perils of Passive Investing.

The tragic perils of passive investing
03/24/04   Indexing
"Now, it seems to be the attitude of the media that regardless of the performance numbers, most Canadians are going to be better off in the iUnits fund than in the 'high cost, low performance' funds their advisor is going to put them in."

Mr. Rogers goes to Wall St.
03/23/04   Indexing
"The late "Mister Rogers" of children's television came to mind as I read a book by Charles E. Ellis called "Winning the Loser's Game -- Timeless Strategies for Successful Investing." Why Mister Rogers? It wasn't a book-jacket picture of the author in a cardigan sweater. Instead, it was the simple way Ellis explained some elegant investment concepts. More important, I felt that I could trust the guy. I found his jaundiced view of my industry to be especially endearing."

Build your own RRSP with ETFs
02/15/04   Indexing
"Here's a little project for a cold weekend afternoon in RRSP season: Build your own pension fund. Some of the sharpest investing minds in the country run pension funds, but you can do it yourself in an hour or so spent in front of a computer."

Vanguard: what flag are they flying now?
02/08/04   Indexing
"All industries, the fund industry included, need competition and new ideas. Through Vanguard, John Bogle has proven the benefits of low-cost, long-term equity investing. But Vanguard had little to do with the great technological capitalization of the last century. From the gun-slingers to the penny-pinchers, all mutual fund companies have their benefits and drawbacks."

New Vanguard ETFs
02/02/04   Indexing
"The exchange-traded class of shares of 14 Vanguard index funds began trading on the American Stock Exchange on January 30, 2004, at 9:30 a.m. The new VIPER Shares feature some of the lowest expense ratios among similar exchange-traded funds tracking specific market segments (large-, mid-, and small-capitalization stocks) and equity sectors."

Some U.S. index funds provide a 'natural hedge'
02/01/04   Indexing
"Index investing in the U.S. market these days is like walking up a down escalator. With the Standard & Poor's 500, Dow Jones industrial average and Nasdaq 100 indexes soaring, and the U.S. dollar falling against our Canadian currency, most index products last year returned merely chump change."

The virtue of ETFs
12/12/03   Indexing
"But I think it's much easier and ultimately a better strategy simply to stick to ETFs that track the broad market -- for example, the iShares Dow Jones Total Stock Market Index (or Vanguard's Total Stock Market VIPER) for the stock market and the iShares Lehman Aggregate Bond fund for bonds."

The new indexing
12/11/03   Indexing
"In the presence of more than one risk factor, the goal of indexing switches from diversification across the available stocks to diversification across the available risk-return dimensions. This might seem like "sector betting" to traditional indexers like Vanguard founder John Bogle, who still believe that market risk primarily determines performance and that small stocks and value stocks aren't separate sources of risk and return. The academic community is arriving at a different consensus, one that recognizes multiple independent risks. Investors might even have natural combinations of the different risk exposures that best suit their individual time horizons and preferences. As long as the portfolios they use to gain these exposures are index funds, and as long as the exposures are consistent and not timed to predict markets, this sort of portfolio structuring is not a "sector bet"it's the new face of indexing."

Joined at the hip
11/19/03   Indexing
"A few years ago Barclays Global Investors did the unthinkable when it released a wide array of U.S. stock ETFs that actually undercut the expense ratios of several comparable Vanguard index funds. Ever since, Vanguard, BGI, State Street Global Advisors, and other ETF providers have waged a public relations battle for the 'hearts and minds' of investors and advisors who use funds tied to popular benchmarks."

11/10/03   Indexing
"Founder and former CEO of The Vanguard Group John Bogle has been speaking out for the past several years against bad trading practices in his industry. Suddenly, a lot of people are listening"

New ETFs give access to emerging markets
09/27/03   Indexing
"ETFs have always done an excellent job of providing avenues for investing in North America, but the selection of global funds used to be disappointing. The iShares and BLDRS emerging market funds, both less than a year old, are symbolic of how times have changed for ETF investors."

The envelopes, please...
09/26/03   Indexing
"The logic that underpins the advice put forward by many so-called "professional" financial advisors can be quite amusing. Perhaps the most amusing of all the truisms of financial advice proffered by virtually all advisors is that investors should choose actively managed mutual funds over passively managed index funds or exchange traded funds."

Sharp jolt for index of fund managers' renown
08/11/03   Indexing
"The academic evidence, however, suggests that this is an overrated skill. The latest study by the Vanguard group shows that the bulk of returns comes, not from stock picking, but from humble asset allocation. Deciding on a 70/30 equity/bond split is the key to portfolio performance, not the ability to find the next Microsoft."

The S&P is lousy at make-or-break bingo
07/25/03   Indexing
"Despite its sizable rally in 2003, over the past three years the S&P 500 has lost more than one-third of its value. That's a drop twice as deep as the Dow Jones Industrial Average and 25% worse than the Wilshire 5000 Index. One key reason could be its managers' singular misadventures with what some traders call "binary" events."

MERs as Indulgences
07/23/03   Indexing
"My advice to consumers is simple. If your advisor recommends a fund to you that either does not have a ten-year track record or has a track record that lags its benchmark, just say no. Ask to buy the benchmark instead."

'Active' managers are closet indexers
07/15/03   Indexing
"Several Canadian funds charge high fees to track indexes."

10 Questions: Is Your Fund Family the Enemy?
07/12/03   Indexing
"William Bernstein has a message for fund investors: The interests of mutual fund companies are highly divergent from yours."

Canada's fund fees called 'criminal'
07/10/03   Indexing
"Truth number one is that active investing is a loser's game. "It must be so," Swedroe says. Simple math shows that in aggregate, active managers must lose. In aggregate active and passive managers must generate the same gross returns but once various expenses and tax effects are included, active managers do worse. MERs are the biggest expense but active managers also must bear four other costs, including trading commissions, the bid/ask spread and the drag on performance created by holding cash."

Succeeding as investors in spite of ourselves
07/05/03   Indexing
"Human beings are wonderfully suited for many things. We've developed language, conquered gravity and made the most of our opposable thumbs and infinite imaginations. What we're not terribly good at, though, is overcoming our own worst impulses - particularly as investors."

The policy portfolio's role in an era Of subdued returns
07/02/03   Indexing
"If I have learned anything in my 52 years in this marvelous field, it is that, for a given individual or institution, the emotions of investing have destroyed far more potential investment returns than the economics of investing have ever dreamed of destroying."

The Wisdom of John Bogle - Part 2
01/29/03   Indexing
"I worry a little bit about America being a financial capital counting everything rather than a production capital making things."

The Wisdom of John Bogle - Part 1
01/29/03   Indexing
"People are very unaware that this industry has changed its mandate from stewardship in the old days to salesmanship in the present era."

Index funds not a bear market disaster
01/26/03   Indexing
"The book on index funds is that they're a hell of a way to invest in a bear market. As go the indexes, so go your index investments. Better to be in a mutual fund, where the manager can soften the market's fall by picking safe stocks or holding some cash. There's no doubt that having a conservative equity fund in your portfolio has been a godsend these past few years, but let's get real about indexing. Much as the mutual fund industry and some financial advisers will try to convince you otherwise, indexing is not the down-market disaster that some make it out to be."

Find out more about ETFs
01/16/03   Indexing
"So why bother with ETFs? For one thing, aggressive investors can trade in and out of ETFs to capitalize on market surges like we've seen lately. ETFs can also be shorted to make money in a falling market. More important, if you can hold on to your ETFs for 10 or, better, 20 years, then the cost- and tax-efficiency of these products really shines. ETFs charge much less than traditional funds in management expenses, which means there are more returns left over for investors after a fund pays itself. ETFs also trade less than most equity funds, which means there are fewer taxable distributions for people investing outside registered accounts. Now, you're probably wondering, where do I go to find out more about ETFs? For the basics on how ETFs work, try these Web sites."

The probability of success
01/11/03   Indexing
"A decade ago, I really did believe that the average investor could do it himself. After all, the flesh was willing, the vehicles were available, and the math wasn't that hard. I was wrong. Having emailed and spoken to thousands of investors over the years, I've come to the sad conclusion that only a tiny minority, at most one percent, are capable of pulling it off."

Interview with John Bogle
01/08/03   Indexing
"However, a fund's management changes every five years, according to Morningstar. Think about how many fund managers you'll have as a young person that invests in several funds! Is there any chance that you'll beat the market over long periods with that kind of manager turnover? You've got costs to overcome, tax inefficiency, fees, stock turnover, cash drag, sales charges - the list goes on."

A collection of fine articles
10/14/02   Indexing
"The first four articles are among the best that I have read about investing, and the final three discuss more practical considerations. May these articles help you to gain a better understanding of investment fundamentals."

Active mismanagement
09/26/02   Indexing
"It sure would be great if we could rely on active management to provide a little good news in this market. Unfortunately, the value-added that active managers bring -- even in this "stock-picker's" market -- is small to none."

Investors carry power to change
09/25/02   Indexing
"In fact, if you have less than $50,000 to invest, you don't need a broker because the best strategy is simply to buy index funds, Levitt said. If you have more than $50,000 and want advice on picking investments, you don't need a broker either, he said. What you need is an independent adviser, preferably one with the certified financial planner designation who considers your overall financial picture."

As ETF terminated, plan with extreme prejudice
09/17/02   Indexing
"Now's the time to plot an exit strategy if you own the low-cost leader in Canadian exchange-traded funds."

Scoff at bond funds?
09/13/02   Indexing
"Have you considered an index bond fund? You should, because these funds are among the more reliable performers out there in the fixed-income area."

How to beat 77% of fund investors
09/12/02   Indexing
"Over the 34-year period he examined, out of a grand total of 2,071 stock funds that were ever open for business, 725 disappeared. Put another way: 35% of all stock funds went kaput, for an average annual mortality rate of 3.6%."

'Stay the course' or pay the price
09/10/02   Indexing
"So for those committed to the long-term -- five or more years -- Bogle suggests investors keep on dollar-cost averaging. "The last thing you want to do is stop the averaging program at the bottom when you kept investing while things were near the top.""

Mug's game
09/01/02   Indexing
"The average active fund in America has lost over 22% (fund-management fees included) since the end of December 1999, according to Lipper, a company that measures fund performance. In Britain actively managed equity funds have lost 31%. Passive funds, however, have fared even worse, on average. Pure index funds have lost over 27% in America since December 1999, and 32% in Britain."

Beware 'orphan' exchange-traded funds
08/28/02   Indexing
"Effective Nov. 1, State Street Global Advisors will terminate the SSgA Dow Jones Canada Titans 40 Index Fund. Dow Jones 40s never attracted a following, despite their ultra-low 0.08-per-cent management expense ratio (the average Canadian equity mutual fund has an MER of roughly 2.5 per cent)."

Efficient Frontier: Summer 2002
07/05/02   Indexing
Including the 2% dilution, the big lie, S.W.I.N.E., and more

Wealth management in the new era
07/04/02   Indexing
"Perhaps it goes without saying that in recent years these three articles of faith, faith in the stock market, faith in the corporate executives who run our publicly-held enterprises, and faith in the trustees who manage our money-have been tested. And found wanting."

Indexing works better elsewhere
06/18/02   Indexing
"In the encyclopedia of index investing, the Canadian stock market should be listed under F for freak. Indexing works very well for exposure to U.S. stocks, and this applies even to the lamentable past 12 months. There's also a convincing argument for using index funds to invest in international markets. In Canada, the case for indexing just isn't nearly as strong."

Back to the drawing board
06/13/02   Indexing
"In the ten-year study the low-cost funds demonstrated substantial superiority in all nine of the style boxes."

Is Time Running Out For The S&P 500?
05/26/02   Indexing
"The S&P 500 has defined the U.S. stock market for decades. But more and more institutional investors are swearing off the index, saying it distorts the very market it purports to represent. Academics agree. Is it time for a new benchmark?"

Jason Zweig of Money Magazine
04/01/02   Indexing
"The notion that stocks come with some sort of money-back guarantee if you just hold them long enough is preposterous. The idea that the Dow should finally admit that it's risk-free and instantly reprice itself to 36,000 is silly. And the claim that stocks have generated 7% annualized returns after inflation for 200 years is a distortion of the historical record. Accurate, comprehensive data for the 19th century simply do not exist--and it's a terrible mistake to assume that the returns of the few companies that were successful enough to survive can tell us anything about how the average stock performed back when Millard Fillmore and Grover Cleveland were gracing the White House. Even if the long-run data weren't rotten with this "survivorship bias," it's not clear why we should care, in the year 2002, about the stock returns of wooden turnpikes, steamboat manufacturers, trolley lines, pony express firms, mule-powered canals, or importers of Peruvian guano. Once you recognize that the 19th-century data are meaningless, the claim that stocks have never lost money over any 30-year period is utterly underwhelming: We have a grand total of three nonoverlapping 30-year periods to go on, and stocks have gone 3-for-3. Whoopie pickle."

Three winning strategies for passive investors
03/27/02   Indexing
"Over the years I've run across three lazy-man's portfolios that beat the market: the Couch Potato Portfolio, the No-Brainer Portfolio, and the Coffeehouse Portfolio. So now you get a chance to vote on the best-of-the-best. All three are published on the Web, so you can check their performance yourself."

Great expectations
01/31/02   Indexing
"The equity premium (also known as the equity-risk premium) is a measure of the average annual return over and above riskless debt, such as government bonds, that shareholders expect to receive as compensation for holding risky shares. This risk is no illusion: shareholders are always the last to be paid, after other creditors get their cut. The authors conclude that all the world's stockmarkets offer strong evidence that riskier assets, on average, return more to investors"

Jack Bogle, man on a mission
12/31/01   Indexing
"Here the longtime advocate of low-cost index investing describes what he expects from the market in coming years and what he believes investors should be doing, as well as what issues in the mutual fund world he's working on at the Bogle Center."

The road less travelled
11/15/01   Indexing
"As they begin their journey, investors are faced with an immediate fork in the road-the choice between an active and a passive management strategy. Given the substantial body of evidence it seems clear that passive investing is the strategy most likely to deliver superior results."

Stocks fall to 3-year lows
09/17/01   Indexing
The NASDAQ is now 68% off its high. Gulp!

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