A few years ago, investors around the globe found out that the choo-choo train ride they thought they were on was actually one of those amped-up roller coasters. You know, the kind that go through a lot of loops and dives and seem like they last forever. Some people cry, some folks bargain with God and others throw up.
The dismal state of the global economy, the sequential crises in various markets and the dubious health of entitlements, pensions and retirement funds have all contributed to the wild ride we’ve been experiencing. It appears that there’s no end in sight, and it looks like stomach-churning twists and turns are all that lie in our foreseeable future. So what’s an index investor to do? (Hint: The answer isn’t sewing your retirement money into the sofa cushions.)
First, Tyler Mordy pragmatically sums up the new (economic) world order in a thought-provoking piece that concludes with some practical suggestions for investors using passive vehicles. Fast on his heels is a group of experts—including Wharton’s Jeremy Siegel, Pimco’s Vineer Bhansali, Dennis Gartman of “The Gartman Letter,” and more—brimming with opinions on what you should be doing to navigate these murky waters. What’s probably the most surprising in this particular roundtable is the unusual degree of consensus.
Then David Blitzer argues that what doesn’t kill indexing makes it stronger, offering examples of how the philosophy has demonstrated comparatively strong returns and some of the innovations that have flourished in the market turmoil.
Michael Branch of Aperio Group follows with an argument for taking a big-picture approach to international markets, in light of the globalization trend; he offers stats and examples to support his thesis that it results in greater efficiency and lower turnover.
Globalization isn’t the only trend that’s been growing over time—volatility had its big moment in the spotlight with the 2008 market meltdown, and it hasn’t conceded center stage since. An article from Nick Cherney, William Lloyd and Geremy Kawaller of VelocityShares discusses strategies investors can use to harness the VIX as a diversification tool; Andrew Clark follows their lead with a discussion of the Thomson Reuters Realized Volatility Index and how it measures a different type of volatility than the VIX.
Joseph Saluzzi and Sal Arnuk of Themis Trading are up next, raising a very interesting point about the indexes we’re using today: Most of them rely on prices from component stocks’ primary exchanges, but that leaves out an awful lot of data. Can they really be considered accurate measures?
Bruce Greig of Altin Holdings LLC closes out the issue with a crossword puzzle built around a theory that has weathered the market gyrations fairly well. You’ll have fun with this one.
Wishing you solid footing in a rapidly evolving marketplace!
Jim Wiandt
Editor
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