Comments on: What is Fundamental Indexing? http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: Free Money Finance http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-46490 Free Money Finance Fri, 17 Nov 2006 11:22:27 +0000 http://allthingsfinancialblog.com/?p=1352#comment-46490 <strong>Star Money Articles for the Week of Nov. 13</strong> Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Blueprint for Financial Prosperity suggests you photocopy the cards in your wallet. Consumerism Commentary decides to participate in his company's stock purcha... Star Money Articles for the Week of Nov. 13

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Blueprint for Financial Prosperity suggests you photocopy the cards in your wallet. Consumerism Commentary decides to participate in his company’s stock purcha…

]]> By: Barry Barnitz http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45931 Barry Barnitz Wed, 15 Nov 2006 17:54:13 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45931 I have posted the research papers making the case for "fundamental" indexing: <a href="http://financialpage.blogspot.com/2006/09/fundamental-indexing-reader.html" rel="nofollow">A Fundamental Indexing Reader</a> Counterarguments against this methodology are made by Bill Bernstein of <i>Efficient Frontier</i> is his essay, <a href="http://efficientfrontier.com/ef/0adhoc/fi.htm" rel="nofollow">Fundamenta l Indexing</a>; and by John Bogle (among other topics) in <a href="http://johncbogle.com/speeches/JCB_CFA_San_Fran.pdf" rel="nofollow">Whats 's Happened to the Mutual Fund Industry?</a> Future performance will help answer questions of implementation costs, tax efficiency, as well as performance vis-a-vis appropriate factor weighted benchmarks. I have posted the research papers making the case for “fundamental” indexing:
A Fundamental Indexing Reader

Counterarguments against this methodology are made by Bill Bernstein of Efficient Frontier is his essay, Fundamenta l Indexing; and by John Bogle (among other topics) in Whats ’s Happened to the Mutual Fund Industry?

Future performance will help answer questions of implementation costs, tax efficiency, as well as performance vis-a-vis appropriate factor weighted benchmarks.

]]> By: rmark http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45916 rmark Wed, 15 Nov 2006 16:30:10 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45916 Since these are likely higher dividend stocks, the taxes the investor pays may offset the funds hypothetical advantage. I don't know either at this point. Since these are likely higher dividend stocks, the taxes the investor pays may offset the funds hypothetical advantage. I don’t know either at this point.

]]> By: rmark http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45914 rmark Wed, 15 Nov 2006 16:27:21 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45914 From the snippet above, they intend to use a simple value formula (so minimal research cost), and if they can keep turnover down they can avoid high trading costs (and taxes on the investor). Since ther aren't tied to a traditional index, they don't have to rebalance to match it. Basically they have to buy and hold. But will investors stay when growth stocks are on a roll? From the snippet above, they intend to use a simple value formula (so minimal research cost), and if they can keep turnover down they can avoid high trading costs (and taxes on the investor). Since ther aren’t tied to a traditional index, they don’t have to rebalance to match it.

Basically they have to buy and hold. But will investors stay when growth stocks are on a roll?

]]> By: JLP http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45913 JLP Wed, 15 Nov 2006 16:10:29 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45913 rmark, I haven't done the research but I would be interested to know what kind of turnover a fundamental index experiences each year. rmark,

I haven’t done the research but I would be interested to know what kind of turnover a fundamental index experiences each year.

]]> By: rmark http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45911 rmark Wed, 15 Nov 2006 16:07:25 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45911 Cap weighting is not a "flaw" in the index. Cap weigthing means that all the stocks are automatically held at the correct weights, with no trading needed to rebalance. The first index fund (circa 1976) was equal weighted, and suffered from costs similar to actively traded funds. Cap weighting is not a “flaw” in the index. Cap weigthing means that all the stocks are automatically held at the correct weights, with no trading needed to rebalance. The first index fund (circa 1976) was equal weighted, and suffered from costs similar to actively traded funds.

]]> By: Foobarista http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45821 Foobarista Wed, 15 Nov 2006 03:47:01 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45821 Does this mean you always end with the dregs of the market, because you dump high flyers just as they start to fly? Given the vast ocean of market data available, this sort of thing should be easy to prove or disprove objectively. It shouldn't need to be "debated" - just run the index against existing data sets and see how it does. If it needs to be debated in some fancy theoretical way, it isn't an index anymore... Does this mean you always end with the dregs of the market, because you dump high flyers just as they start to fly?

Given the vast ocean of market data available, this sort of thing should be easy to prove or disprove objectively. It shouldn’t need to be “debated” – just run the index against existing data sets and see how it does. If it needs to be debated in some fancy theoretical way, it isn’t an index anymore…

]]> By: Russell Bailyn http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45751 Russell Bailyn Tue, 14 Nov 2006 20:37:05 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45751 This is a great discussion as many asset managers are leaning more towards fundamental-weighting. I feel strongly that this trend will continue going forward. Jeremy Siegel, the Wharton professor, has been a big proponent of fundamental indexing for years. His primary reason is that the efficient market hypothesis (assumption that all stock prices are fairly valued) is more or less untrue. We’ve seen fundamentally-weighted indexes outperforming market-cap indexes for years now. This is partly because they give small-cap stocks a fair chance in the index rather than a miniscule weighting in the face of stocks like Microsoft. Siegel actually advises an ETF platform (WisdomTree Investments) which runs a full line of fundamentally-weighted, dividend-paying ETFs. Very interesting product... This is a great discussion as many asset managers are leaning more towards fundamental-weighting. I feel strongly that this trend will continue going forward. Jeremy Siegel, the Wharton professor, has been a big proponent of fundamental indexing for years. His primary reason is that the efficient market hypothesis (assumption that all stock prices are fairly valued) is more or less untrue. We’ve seen fundamentally-weighted indexes outperforming market-cap indexes for years now. This is partly because they give small-cap stocks a fair chance in the index rather than a miniscule weighting in the face of stocks like Microsoft. Siegel actually advises an ETF platform (WisdomTree Investments) which runs a full line of fundamentally-weighted, dividend-paying ETFs. Very interesting product…

]]> By: efipo.com http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45738 efipo.com Tue, 14 Nov 2006 19:37:45 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45738 I agree that index investing should be on a larger scale than the S&P index. Like Russell 5000 index is much more worth it(in my eyes vs. the much smaller S&P). Index investing needs to be in sectors of the market that requires a lot more education such as the Russell, or FTSE. Just my take though! I agree that index investing should be on a larger scale than the S&P index. Like Russell 5000 index is much more worth it(in my eyes vs. the much smaller S&P). Index investing needs to be in sectors of the market that requires a lot more education such as the Russell, or FTSE. Just my take though!

]]> By: Jeremy http://allfinancialmatters.com/2006/11/14/what-is-fundamental-indexing/comment-page-1/#comment-45731 Jeremy Tue, 14 Nov 2006 18:57:42 +0000 http://allthingsfinancialblog.com/?p=1352#comment-45731 Nice take on that article. I read the interview in my issue this weekend as well and was going to comment on it, but I think you hit on most of the key points. I agree it does sound a lot like value investing, which leads me to believe that if value continues to hold up well to growth, fundamental indexing will likely show slightly better returns over a traditional index. Nice take on that article. I read the interview in my issue this weekend as well and was going to comment on it, but I think you hit on most of the key points. I agree it does sound a lot like value investing, which leads me to believe that if value continues to hold up well to growth, fundamental indexing will likely show slightly better returns over a traditional index.

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