Journal Of Indexes
Browse Archives
2009
2009
Betting or Beta?
March / April 2009
Editor's Note
Editor's Note
February 20, 2009
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What Is Alpha Doing HERE?  We’ve got a Journal of Indexes full of alpha (or purported alpha) this issue. You might ask yourself, “Why?” For an answer, you’ll need to look to the index industry AND to active managers, who seem to look more like each other every year. On the index side, you not only have more and more thinly sliced segments of the market used ever-more actively, but now even “quantitative” indexes that aim to outperform market segments. And on the active side? More closet index funds, lower fees and LESS volatility.Interesting. This issue we try to make some sense of all of this for you. Few investors think of Vanguard as an active shop, but the majority of its assets are actively managed. And its active funds, as Matt Hougan has reported in these pages, do quite well, thank you very much. So you’ll read with interest what Christopher Philips and Francis Kinniry Jr. of Vanguard have to say about “leadership volatility.” The always-rock-solid David Blanchett weighs in with an effort of his own on the effect of portfolio concentration on active mutual fund performance, while Robert Whitelaw, Salvatore Bruno and Anthony Davidow explore the issue of alpha/beta separation and how investors can replace high-cost alpha assets (like hedge funds) with low-cost alternative beta. Whitelaw is followed by one of our patented roundtables, with industry luminaries like John Bogle and Bruce Bond weighing in on the question of where to draw the line between active and passive management. From there we jump right into the most active—or actively traded anyway—segment of the index business, as Matt Hougan takes a look at the leveraged and inverse exchange-traded products on the market. These products have been both extraordinarily successful and the leading recent source of debate in the exchange-traded fund business. And then of course, we’ve got David Blitzer, who, at S&P, has long been at the forefront of the active versus passive debate, weighing in with his latest on the subject. Next, Gregory Hight submits a meaty exposition on a better way to think about correlation—what he calls the incremental diversification effect. Bringing home the issue are Matt and me (actively) making absolute fools of ourselves on the back page. So what’s it going to be? Betting or Beta?
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