Posts filed under “Index/ETFs”

S&P 500′s Dubious Market-Cap Weighted Anniversary

 

click for larger graphic
spx sectors

 
 

The Standard & Poor’s 500 Index is market-capitalization weighted, meaning that companies with higher stock-market valuations have a bigger influence on the index. There has been a cottage industry of criticism about this structure. Recently, it has led to a new world of fundamental indexing and so-called smart beta, or seeking ways of using the components of the index to outperform the index itself.

The S&P 500 wasn’t always set up this way. This is a good time to think about the subject, because today marks the anniversary of the index’s overhaul, giving us the structure we have now.

According to the S&P 500 2001 Directory (hat tip to Jason Zweig’s This Day in Financial History), the benchmark index for large cap U.S. stocks looked very different than it did before this day in 1988.

Back then the index was made up of:

400 industrial stocks

40 utilities

40 financials

20 transportations

 

This seems like it was an effort to mimic Dow Jones, which had three big indexes — the Industrial Average, the Transportation Average and the Utilities Average.  According to the Dow Jones Industrial Average Fact Sheet, the Industrial Average was designed “to represent large and well-known U.S. companies, cover[ing] all industries with the exception of Transportation and Utilities.” Having been around since the late-19th century, it had become the benchmark for measuring the U.S. stock market.

Continues here: The S&P 500′s Dubious Anniversary   

 
 
 

Category: Analysts, Index/ETFs, Markets, Valuation

Late to the Party Again: Apple Gets Added to the Dow

I want to address the addition of Apple to the Dow Jones Industrial Average, so we have to get a few things out of the way up front. The venerable Dow isn’t really all that important. It began life on May 26, 1896, but in the last 30 or so years, it has faded in…Read More

Category: Index/ETFs, Investing, Really, really bad calls, Technology

I wanted to spend a bit of time on the Labor Department’s proposal to place a fiduciary obligation on those who manage or provide investment advice on retirement plans. These include individual retirement accounts and 401(k)s (including 403(b)s). The new rules require the broker or adviser to “operate in the best interest of the client.” I don’t…Read More

Category: Index/ETFs, Investing, Mutual Funds, Really, really bad calls

How Passive Funds Changed Investing

Fantastic explanatory from the FT on the history of passive investing:   click for ginormous infographic Source: FT

Category: Digital Media, Index/ETFs, Investing

John Bogle on the Rise of Index Funds

The founder of Vanguard explains why his invention is winning the battle for assets. Plus: The problem with ETFs, and why we need a transaction tax.

Category: ETFs, Index/ETFs, Investing, Video

Vanguard: Has Indexing Gotten Too Big?

Category: Index/ETFs, Investing, Think Tank

How the Dow S&P500 Has Changed

  S&P Closes Above 2,000 for First Time Source: WSJ

Category: Index/ETFs, Markets

Masters in Business: Rob Arnott of Research Affiliates

Rob Arnott turned the world of passive index investing upside down. Best known for creating “smart beta,” Arnott creates models weighted b y four factors: Sales, profits, book value and dividends. Market cap is not relevant to him. Funds running Arnott’s models manage about $200 billion dollars in smart-beta strategies. Assets have increased by 59…Read More

Category: Financial Press, Index/ETFs, Investing, Psychology

How Much Do S&P500 P/E Ratios Vary Historically?

Source: Bespoke Investment Group   How expensive are stocks? Its a question that seems to beget many different answers. Too often, the response reflects the responder’s investment posture. If they are long equities, they typically respond by saying “Not very.” If they are short, or in cash or in other risk assets, the answer is…Read More

Category: Index/ETFs, Investing, Markets, Valuation

The DJIA’s 22,000 Point Mistake

The Dow Jones’s 22,000 Point Mistake Bryan Taylor, Ph.D., Chief Economist, Global Financial Data One of the long-term components of the Dow Jones Industrial Average has been IBM. The company was originally added to the Dow Jones Industrials on March 26, 1932 in a reshuffle involving eight stocks including Coca-Cola, Nash Motors (later American Motors)…Read More

Category: Index/ETFs, Investing, Markets