enhanced index funds

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date enhanced index funds anoop 06-03-2007  Re: enhanced index funds Mark Freeland 06-03-2007  Re: enhanced index funds Douglas Johnson 06-04-2007  Re: enhanced index funds learnfpga@gmail... 06-04-2007  Re: enhanced index funds Rich Carreiro 06-04-2007  DFA Funds (was: enhanced index funds) HW \"Skip\" Wel... 06-05-2007  Re: DFA Funds (was: enhanced index funds) rick++ 06-05-2007  Re: DFA Funds (was: enhanced index funds) Elizabeth Richa... 06-05-2007  Re: DFA Funds (was: enhanced index funds) joeu2004 06-05-2007  Re: DFA Funds Tad Borek 06-05-2007  Re: enhanced index funds anoop 06-07-2007
Posted by anoop on June 3, 2007, 6:08 pm Does anyone have thoughts on enhanced index funds? http://preview.tinyurl.com/yrn2b2 My knee-jerk reaction is to dismiss them on the basis that: - That they probably have a slightly higher risk than the index they are trying to track and could potentially have lower returns. - They have a higher expense ratio than the corresponding index fund. I looked at FLCEX (large cap core enhanced index) on Fidelity's website and found that it has an expense ratio of 0.46% while the corresponding S&P500 index fund has an expense ratio of 0.1%. However, FLCEX has outperformed the index slightly during the 1 month that it has results reported for. Given that the only mutual funds that I currently invest in are index funds, is there any reason for me to be watching these? Anoop Posted by Mark Freeland on June 3, 2007, 7:16 pm > Does anyone have thoughts on enhanced index funds? > http://preview.tinyurl.com/yrn2b2 > > My knee-jerk reaction is to dismiss them on the basis that: > - That they probably have a slightly higher risk than the index > they are trying to track and could potentially have lower returns. > - They have a higher expense ratio than the corresponding > index fund. Major drawback - high (or at least higher) turnover. This is in comparison with cap (well, free-float)-weighted index fund. By definition, the conventional index fund measures/represents the average performance of a dollar in the market (i.e. the index represents 1/Nth of the market, pro-rata). Anything else is an attempt to beat the performance of the average dollar. IMHO, this includes fundamental indexes, which seem to me to a simple form of enhanced indexing. Enhancement can include picking "better" companies in the same sector (e.g. Pepsi instead of Coke) or by overweighting stocks or sectors. The enhancement can be static (fundamental indexes never change their formula for selecting/weighting stocks), or dynamic - continually changing the heuristics as the market gradually evolves over time. > I looked at FLCEX (large cap core enhanced index) on > Fidelity's website and found that it has an expense ratio > of 0.46% while the corresponding S&P500 index fund > has an expense ratio of 0.1%. However, FLCEX has > outperformed the index slightly during the 1 month that > it has results reported for. The concern I have with Fidelity specifically is that they've been there, done that. Fidelity Disciplined Equity was created by Brad Lewis as an enhanced index fund (though it wasn't called that), which used the first form of enhancement I gave (stock substitution). Stock Selector, also created by Lewis, was more wide ranging, using both substitution and weighting variations. The funds did well for awhile, but then fizzled, and Lewis left. On the other hand, Montgomery over at Bridgeway has been doing a great job with quants for years. Mark Freeland BnetOnewsX@sbcglobal.net Posted by Douglas Johnson on June 4, 2007, 11:00 am >Does anyone have thoughts on enhanced index funds? >http://preview.tinyurl.com/yrn2b2 > >My knee-jerk reaction is to dismiss them on the basis that: >- That they probably have a slightly higher risk than the index > they are trying to track and could potentially have lower returns. >- They have a higher expense ratio than the corresponding > index fund. One fund I've been tracking (not owning) since it's inception 18 months ago is PRF, which is a fundamentally weighted index for the S&P 500. It does have a higher expense ratio of 0.79%. It is based on a model that has been back tested to produce a 2% additional return over the S&P 500. I like the theory behind fundamental weighting a lot. The actual practice has been, well, interesting. Last year, PRF gained 3.6% more than the S&P 500. This year, only 0.9% over the S&P 500. Although, if you think about it, that will put it on track to a S&P 500 + 2% gain for the year. As for turnover, it is only rebalanced once a year. -- Doug Posted by learnfpga@gmail.com on June 4, 2007, 11:21 am > Does anyone have thoughts on enhanced index funds?http://preview.tinyurl.com/yrn2b2 > > My knee-jerk reaction is to dismiss them on the basis that: > - That they probably have a slightly higher risk than the index > they are trying to track and could potentially have lower returns. > - They have a higher expense ratio than the corresponding > index fund. > > I looked at FLCEX (large cap core enhanced index) on > Fidelity's website and found that it has an expense ratio > of 0.46% while the corresponding S&P500 index fund > has an expense ratio of 0.1%. However, FLCEX has > outperformed the index slightly during the 1 month that > it has results reported for. > > Given that the only mutual funds that I currently invest > in are index funds, is there any reason for me to be > watching these? > > Anoop I been looking at some of the funds offered by Dimensional Funds (DFA) and wisdom tree. I am probably going to buy some of those just to have those in my portfolio. Right now everything I have is in low cost traditional index funds offered by vangaurd. But I dont see why one shouldnt have 15-20% of there portfolio in so called enhanced index funds. My 2 cents.... Posted by Rich Carreiro on June 4, 2007, 11:46 pm > I been looking at some of the funds offered by Dimensional Funds (DFA) You have to sign up with a DFA-approved registered investment advisor and have the funds under his umbrella to be able to buy into DFA. -- Rich Carreiro rlcarr@animato.arlington.ma.us Similar Threads Posted Pros and Cons of Index Funds? 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