Index Mutual Funds & Spiders (SPY, DIA etc.)
- Karin1
- DennisL
- SteveT
- BillR_5
- Karin1
- SteveT
- SteveT
- Kirk
- bob90245
- SteveT
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» Karin1 - Thruhiker
Thanks for your thoughts regarding Schwab 1000 vs Vanguard. Actually, I already have some Schwab 1000, but was looking to expand to an index that follows the entire Wishire 5000, hence my original post regarding Wilshire Target's new Wilshire 5000 fund, which doesn't even have a symbol yet.I like the idea of keeping everything together with Schwab.Karin1
-- posted by Karin1
» DennisL - Calif. Investment Trust Clarification
I called and asked a representative at California Investment Trust this morning if, in fact, one has to live in California to have accounts with CIT. The answer definitely was "no." CIT has registered many of its funds in several western states. Residents of these states may invest with CIT directly (not through a broker). Residents of other states may invest through a broker, but that, of course, incurs additional costs.The rep told me that the lineup of states in which CIT is registered is expanding all the time, as CIT is always looking to register in more states. I suggested that they maintain a current list of states on their Web site, and she thought that was a good idea.
Call 800-225-8778 or visit http://www.caltrust.com for more information. This really is a good fund family to work with.
-- posted by DennisL
» SteveT - Karin1
This is not my recommendation but what I recall Bob Brinker suggesting to a caller. Of the total dollars you were thinking of putting in the 5000 fund put 90% in the Schwab 1000 and the other 10% in a small cap index. This will give you roughly the same allocation as putting it all in the 5000 index. Your mileage may vary.-- posted by SteveT
» SteveT - More on index funds
More on index funds, can one get to smartfull story excerpt
LOS ANGELES (CBS.MW) -- Hey, we've got the perfect oxymoron for
you. Oxymorons are humorous self-contradictory terms, like jumbo shrimp,
old news, unbiased opinion, virtual reality, Hell's Angels, artificial
intelligence, holy war, soft rock and fuzzy logic.
So here's my question to all you oxymoron lovers: What do you get when
you take a totally passive index fund that could be run by a high-school kid
on an old 486 computer, and hand it over to two guys -- one with a Ph.D. in
systems research and finance, and one who's an advertising spin doctor
working with a mutual fund company whose performance numbers are
sagging?
-- posted by SteveT
» Kirk - An Enticing Alternative to Mutual Funds
Original Article with many good links: http://wealth.bloomberg.com/wealth/artic...SPYders are so good as they don't have built in capital gains. I see these as becoming very popular.
Here is a complete list of the new iShares
-Kirk out
An Enticing Alternative to Mutual Funds
Index-share products are attracting a lot of attention, and a plan to introduce a bevy of new products should add to their allure
By Juliette Fairley, Bloomberg Wealth Manager, March, 2000
Investors have been drawn to index-share products ever since the first one was introduced in 1993. These androgynous investment vehicles, also known as exchange-traded funds, combine some of the most desirable features of mutual funds--like diversification--with some of the best advantages of individual-stock ownership, like flexibility and tax efficiency.
Bedecked with such exotic names as DIAMONDs, SPDRs, WEBS, and Qubes, 30 index-share products now trade on the American Stock Exchange. The DIAMONDs track the Dow Jones industrial average; SPDRs (Standard and Poor's depository receipts) track designated S&P indexes; WEBS (world equity benchmark shares) track specific foreign stock indexes; and Qubes track the Nasdaq 100 (their offbeat name derives from the index's ticker symbol, QQQ).
By year-end 1999, this assortment of index-share products had collectively lured almost $30 billion from investors. That sum is expected to surge in the weeks ahead as Barclays Global Investors, purveyor of the current WEBS products, launches 36 new exchange-traded products, to be known as iShares. These new iShares, which will also trade on the Amex, will track both broad market segments, like the Russell 1000, 2000, and 3000 indexes--longtime favorites of institutional money managers--and narrower market sectors, such as the Dow Jones U.S. health-care sector and the Dow Jones U.S. telecommunications sector. (Here's a complete list of the new offerings)
The potential market for these new products is very large, says Barclays spokesman Tom Taggart. "We've done a lot of research from institutions down to individuals," he says. The main obstacle Barclays faces, Taggart says, is that although a lot of people may have heard of some of the existing exchange-traded funds, they don't really know the difference between one exchange-traded fund and another or the difference between exchange-traded funds and more-traditional mutual funds. "The lack of education is [widespread]; our challenge is to build the educational component," says Taggart.
On that score, Barclays could use as much help as it can get. These products, while simple in concept, are devilishly hard to describe to the average investor. In essence, index-share products are very similar to their better-known cousins, index mutual funds. Both investment vehicles are designed to track specific stock indexes. In both cases, new shares can be created and redeemed at net asset value on any day that the U.S. stock exchanges are open for business. "The real difference," says Cliff Weber, vice president of new-product development at the American Stock Exchange, "is that index-share products are traded in the secondary market." Transactions take place between the investors as opposed to directly with the fund. "That's how the tax efficiency is maintained," says Weber.
"The only creations and redemptions [in index-share products] are large in size," Weber explains. Unlike the shares of mutual funds, shares in index products are redeemed by physical delivery of the underlying stock, which is not a taxable event to the fund. In other words, says Weber, "a big redemption doesn't result in the fund having to sell a stock. Instead, it [simply] delivers the shares."
There are also some minor differences between the two investment vehicles. For example, there are no minimum investment requirements for index-share products, as there are with index mutual funds--$3,000 for the Vanguard 500 Index Fund, for example. However, because index-share products are traded on a stock exchange, buyers (or sellers) of these products are charged a brokerage commission, whereas buyers (or sellers) of no-load index mutual funds are not.
It's the built-in tax efficiency of these index-share products that holds the most appeal, however, and has them winning converts among financial advisers. Ram Kolluri, president and chief investment officer of GlobalValue Investors, a financial-advisory firm in Princeton, N.J., is one such convert. Kolluri invests about 50 percent of his client portfolios in domestic equities, and his instrument of choice for these equity investments, he says, is a SPDR. "We recommend it because we want to make sure that our clients' domestic-equity portion earns its fair share and the results are not far off from the S&P 500," he says. "Sometimes, depending on how the market behaves, a stock portfolio could lag or lead the S&P. So we take one-half of the portfolio and invest it in SPDRs, with great success.
We have $30 million or $40 million worth of SPDRs."
Higher-end clients in particular appreciate the tax efficiency these products offer, Kolluri adds. "Because the index behaves like a stock, [it] allows you to nail down a cost," he says. "Unlike with a mutual fund, we don't get forced distributions or liquidations. We can put [money] in the portfolio, and we know exactly what we paid for the index. The client can say, 'This is my cost basis, here is my dividend, and here is my capital appreciation.' It's a clean-cut deal."
Another adviser who admits to being smitten by these products is Robert Levitt, managing principal at Levitt & Novokoff, a financial advisory firm in Boca Raton, Fla. The way he sees it, index-share products offer essentially the same benefits as index mutual funds, minus some of the tax inefficiencies of mutual funds and with lower expenses.
To Levitt's way of thinking, the new iShares are even more appealing than some of the older index-share products. The original SPDRs, introduced seven years ago--along with the mid-cap SPDRs, introduced in 1995; the DIAMONDs, introduced in 1998; and the Qubes, introduced in 1999--were all structured as open-end unit investment trusts (UITs). By contrast, Barclays' iShares, like Barclays' WEBS and the SPDR sector funds, will be structured as open-end mutual funds. This change, says Levitt, allows the manager to reinvest dividends immediately, thereby eliminating "dividend drag."
UITs, he explains, will typically hold dividends in an interest-bearing account until the end of each quarter, before reinvesting them back into the index. Whenever there's a delay in reinvestment, it affects the total return of the portfolio. By reinvesting dividends daily, the performance of the fund can track the performance of the index more closely.
One other difference between index-share products structured as unit investment trusts and those structured as mutual funds, Weber points out, is that a mutual fund may use futures to help track the index, whereas a UIT cannot. Furthermore, Weber points out, "typically, shares held by a UIT cannot be lent out, whereas mutual funds can lend out their shares, and [the income the loans bring in] helps reduce expenses." Admittedly, the savings aren't great. But when it comes to expenses, every little bit helps.
As of mid-January, Barclays hadn't yet revealed what fees it will charge for its new iShares products. But the expense ratios for the products are generally expected to be at least as low as and possibly lower than the expense ratios of other index-share products now on the market. Those ratios range from 0.18 percent for the original SPDRs, DIAMONDs, and Qubes, to 0.25 percent for the MidCap SPDRs, to 0.65 percent for the SPDR sector funds, to between 1.03 percent and 1.41 percent for the WEBS. Vanguard's 500 Index Fund, by contrast, has an expense ratio of 0.18 percent.
Low as these expenses are, however, they're still not the most appealing aspect of these new funds. Probably the biggest draw, Levitt explains, is the opportunities they present to invest in such a wide variety of asset classes that are currently not available to most investors. The iShares S&P MidCap 400, for example, will be the first noninstitutional vehicle to track this index. Meanwhile, the iShares S&P SmallCap 600 represents a brand-new product for investors, as do a number of iShares sector funds--for example, the Dow Jones U.S. chemical, Internet, and real estate funds.
However, the real highlights of the new products being offered, say most advisers, are the nine iShares based on the Russell indexes--the indexes that many institutional money managers have come to believe give the most comprehensive picture of the markets. Institutions have made heavy use of the Russell indexes over the years. According to Steve Claiborne at Franklin Russell Co., the firm in Tacoma, Wash., that produces the indexes, more than $177 billion is currently invested in funds that model Russell's U.S. indexes, and more than $750 billion in funds is benchmarked against the family of Russell global indexes.
The Russell 1000 index, explains Brad Lawson, senior research analyst at Frank Russell, includes the largest 1000 companies in the U.S according to market capitalization. The Russell 2000 includes the next 2000 largest companies. "You put those two together and you have the Russell 3000, which accounts for about 98 percent of the investable capitalization of the market," notes Lawson.
Like the institutional money managers, the people at Frank Russell think these indexes provide "the best description of market reality," Lawson adds. "We are very careful in the construction of our indexes. The membership is completely objective. We don't decide who gets in and who doesn't. It's based on some very strict criteria."
Of course, as with any large index, there is always some periodic turnover in the underlying securities--which means that there are bound to be gains on some stocks sold and perhaps losses on others. And these gains, net of losses, will be distributed to investors. But, says Taggart, the new Barclays products are designed for low portfolio turnover. "That means that there will be very little trading in and out unless there are portfolio changes," he says.
How frequently do the portfolios turn over? "Some of the indexes might have more-frequent changes than others," says Taggart. The Russell indexes, for example, are rebalanced only once a year, on July 1. Stocks that have gotten too big or too small are sold and replaced with others. In 1999, 185 names were added and 185 deleted from the Russell 1000 large-cap index, Lawson says. These additions accounted for 4.1 percent of the index, whereas the deletions accounted for about 7.9 percent. (The reason those figures don't match is that the stocks that stayed in the index grew to represent a bigger part of the index.)
For the Russell 2000 small-cap index, 523 names came and 523 left. "The additions were about 25.2 percent of the index, and the ones that left were about 35.4 percent," says Lawson, adding that the ones that "left" were either taken over by another company, became too big for the index and went into the Russell 1000, or became too small for the index and left the Russell 3000.
Of course, portfolio turnover is just one thing to keep in mind when choosing an index that matches your investment strategy. With all the new index-share products to choose from, it's likely you'll find at least one that's a good fit.
Then again you may want to take the approach Thomas Mench, chairman and chief investment officer of Mench Financial in Cincinnati, has followed: "Back in 1993, when we first started with them, we were just using them as a normal position," he says. "So we would buy a 5 percent position for our client. After they added WEBS and sectors, we started offering products to our clients that were 100 percent depository receipts. Now we're mixing eight or 10 of the depository receipts to come up with a diversified portfolio."
Over the years, in fact, Mench says he has used all the available index-share products. "In general, in our individually managed clients' portfolios, where we're using individual securities to create a growth portfolio or an aggressive growth portfolio, there could be up to 50 percent of the portfolio in depository receipts," he says.
Just imagine the challenge he's going to have deciding which products to buy when the iShares come on the market.
Juliette Fairley, a freelance writer, is the author of Cliff Notes on Mutual Funds (IDG Books) and Money Talks (John Wiley). Her e-mail address is JwriteNY@aol.com.
-- posted by Kirk
» SteveT - Russell to Add More Than 300 to Index
http://story.news.yahoo.com/news?tmpl=st...
Russell to Add More Than 300 to Index
By MEG RICHARDS, AP Business Writer
NEW YORK - The Frank Russell Co. is reconstituting its well-known series of equity indexes, an annual process that will add more than 300 names to its market-weighted list of the 3,000 largest U.S. stocks.
The event, which concludes at the end of June, shows on a massive scale that big market players have to rebalance their portfolios regularly, just as small investors do.
Because Russell's products are used as benchmarks by many mutual funds, including passively managed index funds and exchange-traded funds that aim to mirror their performance, the annual reconstitution causes a great deal of market churn. The bottom portion of the overall list — the small-cap Russell 2000, the most popular of the company's 21 indexes — usually sees the most turnover, and the most volatility.
"What all our indexes are trying to do is show what the markets look like," said Lori Richards, senior product manager with Tacoma, Wash.-based Russell. "We rebuild the index every year to make sure what we've classified as large cap is still large cap, that there are no small companies festering in the large cap index or large cap companies in the small cap index."
Some companies, such as Winn-Dixie Stores and 99 Cent Stores, have seen a drop in market cap sufficient to move them from the Russell 1000 to the Russell 2000. Others, such as Ask Jeeves Inc. and Ann Taylor Stores Corp., have vaulted from the Russell 2000 to the Russell 1000.
According to a preliminary list, there are 323 new names being added, including 95 companies that had initial public offerings during the last 12 months. Ten of these shot straight into the Russell 1000 index of the nation's largest companies. Last year, 289 companies were added, and only 28 were IPOs.
Stocks added to the Russell 2000 — where the largest company has a market cap of about $1.2 billion — include some of the past year's biggest success stories. Internet travel expert Orbitz Inc. and kidswear retailer Carter's Inc. both went public in the second half of 2003, and automotive component supplier Hayes Lemmerz International Inc. is getting a fresh start after emerging from bankruptcy.
Nearly 200 companies dropped off the list because of corporate activity, such as mergers and acquisitions or bankruptcies, during the 12 months preceding May 31. A number of others, such as troubled health club operator Bally Total Fitness Holding Corp., will be eliminated because their market capitalization has fallen too low.
Losing a spot on an index can be a serious blow for a company, said Chris Hodges, president of Ashton Partners, a Chicago-based strategic advisory firm.
"When you fall off this thing, you start to slowly lose your index representation," Hodges said. "And index players are the ones that support a lot of the daily volume for many stocks. After that, it's up to the company's management team to get out there ... and meet with prospective investors."
More than $360 billion in passively managed assets are pegged to Russell indexes, and the company estimates another $900 billion in actively managed assets are benchmarked to its products. That means there are an awful lot of managers keeping a close watch on the process.
Index funds are usually adjusted after the changes are formalized on June 25, the last Friday of the month. But some active managers start making speculative trades as early as February, in the hopes of capturing a short-term gain.
"Some Wall Street firms and hedge funds try to anticipate the changes and can profit if they guess right," said Thomas F. Lydon, president of Global Trends Investments in Newport Beach, Calif. "For individual investors, this process might be a bit risky as every stock is subject to current market conditions."
The best strategy for average investors is to simply be aware that the process is going on, and to not be spooked by the short-term volatility associated with it, said Laura Pavlenko Lutton, an analyst with Morningstar Inc.
"Funds that closely follow the index will make trades so their product matches, and some thinly traded companies' share prices will go up as a result of being added," Lutton said. "But that settles down after a while. A mutual fund investor with a long-term time horizon shouldn't be troubled by it."
___
On the Net:
www.lipperweb.com
www.morningstar.com
www.russell.com
www.standardandpoors.com
-- posted by SteveT
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