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Index funds: An efficient index in inefficient markets

Discussion in 'Exchange Traded Funds (ETF)' started by Simon Hampel, 14th Apr, 2009.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Index funds: An efficient index in inefficient markets

     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi Sim

    I like the concept of index funds. Not ever wanting to be a trader, I will accept a performance that is lower than 30% of fund managers. My question is this. How do they calculate index funds in times of great volativity?

    Johny
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    Hi Johny,

    What do you classify as being lower than fund managers? Remember that last years winners are usually this years dogs. It is near impossible for a fund manager to be year after year outperforming.


    The same way they do in times of low volatility? Attached is Vanguard Australia Property Index fund factsheet (it shows the weighted percentages whereas the Aussie and International Shares don't show the weighted percentages) http://www.vanguard.com.au/vnl/factsheet/vapsif.pdf

    You can also look at the volatility index (aka VIX) CBOE VOLATILITY INDEX Index Chart - Yahoo! Finance to show the years volatility.

    Cheers,

    Dan


    PS This is general information, before making an investment decision speak to your FPA registered Financial Planner.
     
  4. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Thanks AsxBroker

    You are correct of course. I have been reading indexing books at uni, and the stats don't say 30% is a rolling average or, whether they were calculated when the book was published.

    Do you know of any Idia only index funds or China only index funds?

    Johny.
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi Johny,

    I do not know of any managed funds like that available. There may be some Exchange Traded Funds (ETF) available.

    Cheers,

    Dan

    PS This is general information. Speak to your FPA registered Financial Planner before making an investment decision.
     
  6. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Have you heard anything about the Fidelity India Fund?

    Johny.
     
  7. venger0

    venger0 Active Member

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    @johnny_comes_lately, there's a couple of ishares ETFs covering that particular region, from memory- IZZ top 25 china index, also IAA for asia and then there is another ishares for Hang Seng (hong kong .. so maybe IHK?).. there are also a couple of emerging markets IEM and IBK (for specifically the BRIC nations.
    Oh. and there is also a listed inv company with the ASX code of AGF.


    @sim, thanks for the article :) i hadn't heard of realindex investments before... sounds like they do a similar thing to DFA?
    did a quick google.. loks like they are a part of Colonial First State... wonder that their MERs are like? :D

    ps: i own none of the above china/asia only funds.. just sharing the info. DYOR...
     
  8. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Realindex from colonial

    If indexs' are all market weighted and Realindex is not, does this mean that technically it is not an index?


    Johny.
     
  9. venger0

    venger0 Active Member

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    @johny, would imagine that if you designed and published an index by inversely weighting from the last of top 200 company up to the highest, based on market cap (that is, BHP becomes the smallest portion of your index) - you could reasonably call it "Johny's index".. :D

    not all indices are market cap weighted - in the US, there are a few varieties... eg, Vanguard worked with FTSE to develop a high dividend yield stocks index for their high yield stocks fund to track.

    from what i've read of the article, realindex has done some R&D and come up with their own "index", based on specific rules and filters and intent to run a fund to track their own index.
    So their funds will track separate indices as opposed to vanguard and streettracks; these track the ASX300 and ASX200 respectively.
    the ASX200/300 index was designed by S&P and started sometime in 2000 (IIRC).

    hope above is helpful and not repeating the obvious for you :)
     
    Last edited by a moderator: 8th Jul, 2009
  10. Waimate01

    Waimate01 Well-Known Member

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    That's not correct, but it is a frequently misunderstanding.

    Index funds do not have to rush out and buy more BHP shares every time BHP goes up, because they already own them and the ones they already have go up in value.

    The only time index funds need to transact are:

    1) when new money enters the fund, in which case they buy more of what they already have in exact proportion to what they already have

    2) when stocks enter or leave the index. Most index funds, if mirroring the ASX200 for example, would not bother with the bottom 10 or 20 stocks, because they are the ones most likely to drop on and off the index and have little bearing on the overall index, so they try to minimise the number of times entries or exits occur.

    If it worked the way you're suggesting, then index funds would have a high transaction rate, whereas their objective is to have a low transaction rate.

    When you have a basket of shares that mirrors the ASX200, then as the various stocks flutter up and down, your basket continues to mirror the ASX200 without you having to lift a finger.
     
  11. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Australian Index Funds

    Does anybody have a list of all the available index funds, for the Australian market?

    Thanks, Johny.
     
  12. bundy1964

    bundy1964 Well-Known Member

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    Exchange Traded Commodities
    ETPMPM ETFS Physical Precious Metal Basket Units
    ETPMPT ETFS Physical Platinum Units
    ETPMAG ETFS Physical Silver Units
    ETPMPD ETFS Physical Palladium Units
    GOLD Gold Bullion Securities Units
    Exchange Traded Funds
    IAA iShares S&P Asia 50 Index Fund Units
    IBK iShares MSCI BRIC Index Fund Units
    ITW iShares MSCI Taiwan Units
    IKO iShares MSCI South Korea Units
    IHK iShares MSCI Hong Kong Units
    ISG iShares Singapore Units
    IRU iShares Russell 2000 Units
    IZZ iShares FTSE Xinhua China 25 Units
    IJP iShares MSCI Japan Units
    IEM iShares MSCI Emerging Markets Units
    IOO iShares S&P Global 100 Units
    IVV iShares S&P 500 Units
    IJH iShares Midcap 400 Units
    IJR ishares S&P Smallcap 600 Units
    IVE iShares MSCI EAFE Units
    IEU iShares S&P Europe 350 Units
    STW SPDR 200 Units
    SFY SPDR 50 Units
    VAS Vanguard Australian Shares Index Units
    VEU Vanguard All-World EX US Shares Index Units
    VTS Vanguard US Total Markert Shares Index Units
    Exchange Traded Funds - Sectors
    IXI iShares S&P Global Consumer Staples Sector Index Fund Units
    IXJ iShares S&P Global Healthcare Sector Index Fund Units
    IXP iShares S&P Telecommunications Sector Index Fund Units
    SLF SPDR 200 Property Units

    I think that covers all the ETF currently available.
     
  13. Johny_come_lately

    Johny_come_lately Well-Known Member

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    A GOOD list of Index Funds!

    Thanks Bundy,

    A a matter of interest, what would happen if the company that evaluated an index (not the company that uses it) went bust. If xyz 200 index was used by company B, would it have to close its funds, if that index became unavailable?


    Johny.
     
  14. Johny_come_lately

    Johny_come_lately Well-Known Member

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    New Index fund

    Just bought into the new RAFI index fund from Colonial First State. It's a bit expensive at 0.66 MER(management expense ratio). Will see how it tracts against a traditional index. Being less than a year old, only 6M has been raised but I see that CFS is using RAFI in their balanced funds. It should become more popular with time.


    Johny.
     
  15. AsxBroker

    AsxBroker Well-Known Member

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  16. Waimate01

    Waimate01 Well-Known Member

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    RAFI sounds pretty interesting, but I think it's important to appreciate that it's not an index fund. It uses the word "index" in its name, and it invests in largely the same stocks as are represented in the index, but it does not follow the index.

    The dual claims of "we follow the index" and "we are better than/different to the index" are contradictory.
     
  17. AsxBroker

    AsxBroker Well-Known Member

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    Hi Waimate,

    I agree with you, "Fundamentals Weighted™ indexes" is a research driven investment as opposed to a "real" index.

    They did list some similar benefits of indexing though a passive large cap fund would be quite similar.

    Sim you can do a comparison on CompareFunds with FSF0980AU and XAO from 5th March 2009 to now?

    Cheers,

    Dan
     
  18. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Getting an error message on comparefunds with that code(FSF0980AU)


    J.
     
  19. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That fund hasn't been added to CompareFunds yet. I need to spend some time going through all the new CFS funds and adding them to the site - give me a few days and I'll see what I can do.
     
  20. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Okay, I've added a few new funds to Compare Funds :: Managed Fund Comparison Charts and Statistics, including the RAFI funds (which incidentally, I have NOT marked as being "index" funds).

    Colonial First State FirstChoice Investments


    Colonial First State FirstChoice Wholesale Investments

    Note also that BT Funds have fixed their website, so I'm now able to download data from all their funds again too.