|
Index Funds Behaving Badly - HUMOR
 Admit it: We index fund wonks like to think of ourselves as just a little bit smarter than everybody else. We resist the siren song of active management and focus instead on low costs, a long-term investment horizon and good old-fashioned common sense. We’re completely insufferable at cocktail parties.
But like any good revolutionaries, our banner sometimes gets hoisted over less-than-stellar parties as well. Just as there are a few good active funds strewn amidst the wreckage, so too are there a few index funds—more than a few, it turns out—that don’t seem to align with the core tenets of this publication.
With that in mind, we’ve pulled together a test of sorts, to see if you can separate truth from fiction when it comes to “the world’s worst index funds.”
1.The highest annual expense ratio for an “index” mutual fund in 2008 was:
a. 1.49%
b. 2.49%
c. 4.25%
d. 5.49%
e. 6.12%
2. The trailing one-year turnover rate, rounded to the nearest decile, for the world’s most ridiculously expensive index fund (see question 1):
a. 0%
b. 10%
c. 30%
d. 100%
e. 150%
3. The Morningstar rating for said fund?
a. *
b. **
c. ***
d. ****
e. *****
4. Which of the following is an actual expense ratio for an S&P 500 Index fund?
a. 1.48% expense ratio, 5.00% front-end load
b. 1.51% expense ratio, 4.75% front-end load
c. 2.25% expense ratio, 1.00% deferred load
d. All of the above.
5. What was the annual expense ratio for The Kids Fund (KIDSX), which selected a portfolio of children-focused companies from the Will Hepburn-created Children’s 100 Index. (Note: The fund was marketed as “an important tool for parents and grandparents who want to teach their children about the fundamentals of investing.”)
a. 0.35%
b. 0.50%
c. 1.05%
d. 1.95%
e. 2.15%
6. What was the largest tracking error for an ETF in 2008?
a. 1.2%
b. 5.3%
c. 11.9%
d. 15.3%
e. 18.1%
7. What was the average increase in equity exposure in target-date funds from 2003 to 2008, according to Financial Research Corp.?
a. -5%
b. 3%
c. 0%
d. 6%
e. 13%
8. How much higher was the equity weighting in the Oppenheimer Transition 2020 Fund (OTWAX) versus the Wells Fargo Advantage DJ Target 2020 Fund (WFDTX), as of June 16, 2008, according to Investment News?
a. 3%
b. 12%
c. 21%
d. 39%
e. 50%
9. What was the performance differential between the two “2020” target-date funds in 2008?
a. 3%
b. 6%
c. 10%
d. 22%
e. 30%
Answers:
1. D. Adding insult to injury, the AMIDEX Cancer Innovation & Healthcare Fund (CNCRX) also charges a 5.5% front-end load.
2. A. While we normally applaud sticking to your knitting, one wonders if the investment committee just meets on the golf course once a year.
3. C. No comment. Really. Honest. Maybe there are stars awarded for good penmanship.
4. D. (Come on, you knew that was a trick). The funds are, in order, the State Farm S&P 500 Index Fund B (SNPBX) and the Rydex S&P 500 Index Fund (share classes A and C). (Note: The 5% fee on SNPBX is a contingent deferred sales charge for redemptions taken in Year 1.)
5. D. Shockingly, this fund appears to no longer be in operation. I guess the “lesson” in this case was “caveat emptor.”
6. C. The iShares FTSE NAREIT Mortgage Index Fund (NYSE Arca: REM) ran afoul of diversification requirements after the failure of a huge number of REITs.
7. E. Because obviously those fancy algorithms knew just when to pile on the equity.
8. C. Clearly one man’s “use-by” date is not the same as another’s.
9. D. The Oppenheimer fund delivered a -43.6% return, against a -22.1% result for the Wells Fargo offering.
|
