Editor's Note
By Journal of Indexes Staff

Crude Oil And Active Indexes

No single economic relationship is as vital, or as volatile, as that of crude oil and the global economy. It is a tenuous balance. Increased economic activity pushes up demand, which squeezes supply, which in turn pushes up energy prices, which dampens economic productivity. It is a classic case of supply and demand, with despotic governments, the occasional war, and dwindling reserves thrown in to spice things up.

John Serrapere's comprehensive survey article looks at the crude market's outlook and how you can hedge against current trends-or put them to work for you. Matt Hougan follows up with a review of all the available and forthcoming index products in the oil and commodities space.

While $70 oil prices can raise the hackles of almost anyone, nothing has caused as much debate in the index industry in recent years as alternative index weighting methodologies. The recent clamor around Rob Arnott's "fundamental indexes" is about equal to that of the noisiest days of the free float debate. Let me say first that I know index providers have been looking at fundamental index weighting for some time. And just by looking at how the flow of new index products moves with the market and toward alpha pursuit (not exactly Bogleian), some of the indignation about active management in our midst strikes me as a bit disingenuous.

Still, I'd be lying if I said I wasn't skeptical about any claim of a more accurate representation of "the market" than where the actual money is, and of any claim that free money can be made by adjusting weights against the decision of the capital markets. But I'd also be lying if I said I didn't find it all very, very interesting. It's along the lines that the Fama/ French crowd has been talking for years. That means, at a very simple level, the FTSE/RAFI indexes are a bit of a small/value play against the market. It's just built into a fancy, complex methodology.

And for the first time in JoI (another publication has been running some of this material I understand), you can get a clear and simple overview of this methodology, straight from the horse's mouth, in an article by Carmen Campollo from FTSE and Jason Hsu from Research Affiliates.

This article is accompanied by an interview with the chief executive and founder of FTSE, Mark Makepeace. Mark discusses the fundamental indexes, the state of global markets and the competitive landscape in the index industry. We thought it was only apt that we run as counterpoint to FTSE/RAFI an interesting little mini-study by David Blanchett that comes out waving the flag for cap weighting.

And if all that isn't enough to keep you interested (and I'm guessing it is), we have a nice article from Kelly Haughton (who's been with Russell indexes since before there were Russell indexes) on how provisional indexes are increasingly used to help investors manage the Russell rebalances. In addition, we have great columns from John Bogle and David Blitzer, and the Curmudgeon weighing in with his usual antics. Enjoy!