ETF Index funds: An efficient index in inefficient markets

Hi Sim

I like the concept of index funds. Not ever wanting to be a trader, I will accept a performance that is lower than 30% of fund managers. My question is this. How do they calculate index funds in times of great volativity?

Johny

 

Hi Johny,

What do you classify as being lower than fund managers? Remember that last years winners are usually this years dogs. It is near impossible for a fund manager to be year after year outperforming.

The same way they do in times of low volatility? Attached is Vanguard Australia Property Index fund factsheet (it shows the weighted percentages whereas the Aussie and International Shares don't show the weighted percentages) http://www.vanguard.com.au/vnl/factsheet/vapsif.pdf

You can also look at the volatility index (aka VIX) CBOE VOLATILITY INDEX Index Chart - Yahoo! Finance to show the years volatility.

Cheers,

Dan


PS This is general information, before making an investment decision speak to your FPA registered Financial Planner.

 

Thanks AsxBroker

You are correct of course. I have been reading indexing books at uni, and the stats don't say 30% is a rolling average or, whether they were calculated when the book was published.

Do you know of any Idia only index funds or China only index funds?

Johny.

 

Hi Johny,

I do not know of any managed funds like that available. There may be some Exchange Traded Funds (ETF) available.

Cheers,

Dan

PS This is general information. Speak to your FPA registered Financial Planner before making an investment decision.

 

Have you heard anything about the Fidelity India Fund?

Johny.

 

@johnny_comes_lately, there's a couple of ishares ETFs covering that particular region, from memory- IZZ top 25 china index, also IAA for asia and then there is another ishares for Hang Seng (hong kong .. so maybe IHK?).. there are also a couple of emerging markets IEM and IBK (for specifically the BRIC nations.
Oh. and there is also a listed inv company with the ASX code of AGF.


@sim, thanks for the article i hadn't heard of realindex investments before... sounds like they do a similar thing to DFA?
did a quick google.. loks like they are a part of Colonial First State... wonder that their MERs are like?

ps: i own none of the above china/asia only funds.. just sharing the info. DYOR...

 

Realindex from colonial

If indexs' are all market weighted and Realindex is not, does this mean that technically it is not an index?


Johny.

 

@johny, would imagine that if you designed and published an index by inversely weighting from the last of top 200 company up to the highest, based on market cap (that is, BHP becomes the smallest portion of your index) - you could reasonably call it "Johny's index"..

not all indices are market cap weighted - in the US, there are a few varieties... eg, Vanguard worked with FTSE to develop a high dividend yield stocks index for their high yield stocks fund to track.

from what i've read of the article, realindex has done some R&D and come up with their own "index", based on specific rules and filters and intent to run a fund to track their own index.
So their funds will track separate indices as opposed to vanguard and streettracks; these track the ASX300 and ASX200 respectively.
the ASX200/300 index was designed by S&P and started sometime in 2000 (IIRC).

hope above is helpful and not repeating the obvious for you

 

That's not correct, but it is a frequently misunderstanding.

Index funds do not have to rush out and buy more BHP shares every time BHP goes up, because they already own them and the ones they already have go up in value.

The only time index funds need to transact are:

1) when new money enters the fund, in which case they buy more of what they already have in exact proportion to what they already have

2) when stocks enter or leave the index. Most index funds, if mirroring the ASX200 for example, would not bother with the bottom 10 or 20 stocks, because they are the ones most likely to drop on and off the index and have little bearing on the overall index, so they try to minimise the number of times entries or exits occur.

If it worked the way you're suggesting, then index funds would have a high transaction rate, whereas their objective is to have a low transaction rate.

When you have a basket of shares that mirrors the ASX200, then as the various stocks flutter up and down, your basket continues to mirror the ASX200 without you having to lift a finger.

 

Australian Index Funds

Does anybody have a list of all the available index funds, for the Australian market?

Thanks, Johny.

 

Exchange Traded Commodities
ETPMPM ETFS Physical Precious Metal Basket Units
ETPMPT ETFS Physical Platinum Units
ETPMAG ETFS Physical Silver Units
ETPMPD ETFS Physical Palladium Units
GOLD Gold Bullion Securities Units
Exchange Traded Funds
IAA iShares S&P Asia 50 Index Fund Units
IBK iShares MSCI BRIC Index Fund Units
ITW iShares MSCI Taiwan Units
IKO iShares MSCI South Korea Units
IHK iShares MSCI Hong Kong Units
ISG iShares Singapore Units
IRU iShares Russell 2000 Units
IZZ iShares FTSE Xinhua China 25 Units
IJP iShares MSCI Japan Units
IEM iShares MSCI Emerging Markets Units
IOO iShares S&P Global 100 Units
IVV iShares S&P 500 Units
IJH iShares Midcap 400 Units
IJR ishares S&P Smallcap 600 Units
IVE iShares MSCI EAFE Units
IEU iShares S&P Europe 350 Units
STW SPDR 200 Units
SFY SPDR 50 Units
VAS Vanguard Australian Shares Index Units
VEU Vanguard All-World EX US Shares Index Units
VTS Vanguard US Total Markert Shares Index Units
Exchange Traded Funds - Sectors
IXI iShares S&P Global Consumer Staples Sector Index Fund Units
IXJ iShares S&P Global Healthcare Sector Index Fund Units
IXP iShares S&P Telecommunications Sector Index Fund Units
SLF SPDR 200 Property Units

I think that covers all the ETF currently available.

 

A GOOD list of Index Funds!

Thanks Bundy,

A a matter of interest, what would happen if the company that evaluated an index (not the company that uses it) went bust. If xyz 200 index was used by company B, would it have to close its funds, if that index became unavailable?


Johny.

 

New Index fund

Just bought into the new RAFI index fund from Colonial First State. It's a bit expensive at 0.66 MER(management expense ratio). Will see how it tracts against a traditional index. Being less than a year old, only 6M has been raised but I see that CFS is using RAFI in their balanced funds. It should become more popular with time.


Johny.

 

Interesting overlay Johny...
http://www.colonialfirststate.com.au/prospects/Realindex_AIS_approved.pdf

 

RAFI sounds pretty interesting, but I think it's important to appreciate that it's not an index fund. It uses the word "index" in its name, and it invests in largely the same stocks as are represented in the index, but it does not follow the index.

The dual claims of "we follow the index" and "we are better than/different to the index" are contradictory.

 

Hi Waimate,

I agree with you, "Fundamentals Weighted™ indexes" is a research driven investment as opposed to a "real" index.

They did list some similar benefits of indexing though a passive large cap fund would be quite similar.

Sim you can do a comparison on CompareFunds with FSF0980AU and XAO from 5th March 2009 to now?

Cheers,

Dan

 

Getting an error message on comparefunds with that code(FSF0980AU)


J.