猪宝斋

From pain in the neck to big idea | The Real Definition of “Web 2.0″

2005-11-27

Real world index fund

(I'm too lazy to comment on this article this week.><)

There was an insightful article on bloomberg last week, Index Mutual Funds Get an A in School, C- in Life by Chet Currier, which disclosed the myth of passively managed fund these years. Vanguard 500, the biggest index fund with 104.5 billion asset, was taken as the example that suffered since "the big stocks that had contributed heavily to the 500 index's runaway rise suffered some outsized losses when the bullish bubble burst", "even with their natural advantage of lower costs (less trading, no company research to do)."

One of the fundamental issue is that "market capitalization weighted indexes contain systematic pricing error": "an index overweights every `overvalued' stock and underweights every `undervalued' stock.'' To me, index is another brainless strategy: neither is it value-based nor technique-based. Not to mention some industry specific indices are actually semi-actively manipulated, which may have chance to beat S&P500.