Editor's Note
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The Cold Hard Truth  I have always found it ironic that indexing-like most everything else in the world of finance-comes in waves. In an early article I wrote in this publication when John Prestbo was still the editor, I noted that a careful comparison of returns and fund inflows showed that even asset growth in the erstwhile Vanguard 500 was driven by investors chasing returns.
These days, hedge fund indexes, microcap indexes, dividend indexes, commodities indexes, China indexes and "enhanced" indexes are all flavors of the month. And I'll give you three guesses as to what all of these indexes have in common: 1) Chasing returns 2) Chasing returns or 3) Chasing returns This drift is ironic, of course, and slightly insidious, and my feelings about it are mixed. The more assets move to low fee, passive products, the better. But the way some people trade ETFs, it's often little different than trading stocks, with a few basis points of expense ratio added on underneath. And this move toward "enhanced" indexing ... call me a cynic, but if you believe in indexing, then you know that there is no free money, and you've got to believe that active is active-it's only a matter of degree. Ultimately, the push toward enhanced indexing is about enhancing the bottom line for managers-something all the major index players have been doing with great success of late. Overall, I'll take our crowd, the indexing crowd, any day. But I think it's important for us to keep our eyes on the ball and remember what makes indexing, well, indexing. Low fees, broad diversification, hold hold hold. Don't believe the hype. Try to beat the market-in any manner-and you're likely to get beat ... by about the cost of doing it. We've got a great issue this time. Steven Schoenfeld gets the lead, with a piece that skewers the notion that the diversification benefits of international investing are on the ebb. Next up is a submission from Paul Mazzilli and Dodd Kittsley, which shows just how many ways people can employ ETFs, actively and otherwise. Al Neubert and I weigh in on the Dow Jones and McGraw-Hill lawsuit against the ISE, while Mike Traynor, William Uchimoto, James Connolly and Joseph Rizzello present a topflight look at Regulation SHO and the problems with ETF share lending (and securities lending in general). We also have a nice educational Q&A talking about indexes and benchmarks from Francis Gupta, a survey of the state of retail indexing by Dan Jamieson, and the latest columns from John Bogle, David Blitzer, the Professor and the Curmudgeon. In short, we're chock full of indexing fun this issue. LAST CALL-please send in your nominees for 1) Most innovative benchmark index, 2) Most innovative index fund/ETF, 3) Most innovative index derivative and 4) Best index-related re s e a rch paper. Send all nominations to nominations@indexuniverse.com. Winners will be announced at the William F. Sharpe Achievements in Indexing Awards to be presented on December 5, 2005, at the Super Bowl of Indexing. For more information, see the announcement on page 45. Enjoy the issue ... and see you in Phoenix.
Jim Wiandt |
