Loading...
Symbols:
DLS Forum Topics
- All Comments on DLS
- General Discussion on DLS
- International Dividend Investments Can Diversify Portfolio [view article]
- International Dividend ETFs [view article]
- Debating 'Fundamental Weighting' and Indexing [view article]
- 3 ETFs I'd Still Like To See [view article]
- Jim Wiandt's Five Favorite ETFs [view article]
- A List of Dividend ETFs [view article]
- Questioning a Large-Cap 'Flight To Quality': Small is Still Beautiful [view article]
- 26 Dividend Paying ETFs By Yield [view article]
- Interview: Luciano Siracusano, Director of Research for ETF Firm WisdomTree Asset Management [view article]
- Evolution of ETFs Creates New Portfolio Possibilities (PBJ, DLS, AIB) [view article]
loading ...Recent DLS Articles
- International Dividend Investments Can Diversify Portfolio
- Debating 'Fundamental Weighting' and Indexing
- ETF Fund Flows (Week Ending 2/15/08)
- ETF Year in Review: Total Assets Rose 51% Y/Y
- International Small Cap ETFs Favor Japan and UK
- The Best Smallcap International ETF? That Depends
- 3 ETFs I'd Still Like To See
- BGI Targets International Smallcap With Three New Fund Filings
- Jim Wiandt's Five Favorite ETFs
- A List of Dividend ETFs
- Full List of Articles »
Trading Center
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
ocks
International Dividend Investments Can Diversify Portfolio [view article]
Agree.Foreign funds give high dividends but most of them are heavily weighted in financials. Caution is warranted when picking up such funds. ReplyInternational Dividend Investments Can Diversify Portfolio [view article]
RAFI stands for Research Affiliates Fundamental Index. ReplyInternational Dividend Investments Can Diversify Portfolio [view article]
RAFI stands for Research Affiliates Fundamental Index. ReplyInternational Dividend Investments Can Diversify Portfolio [view article]
Barnburner- there are several funds and ETFs that are based on the RAFI methodology. PRF offered by Powershares is and ETF for US large cap and there are international stock offerings as well. Schwab offers mutual funds based on the RAFI methodology that have lower expense ratios than the Powershares ETFs. Of late, the international RAFI funds are doing much better than the US funds. Lot of debate about the merits of fundamental weighting (which includes dividend weighting) vs. capitalization weighting. You'll want to research. ReplyInternational Dividend Investments Can Diversify Portfolio [view article]
L.Bill, RAFI does not come up for me when I plug that symbol to get quotes and info., am I reading that correctly?Thanks Reply
International Dividend Investments Can Diversify Portfolio [view article]
Two things: First, everyone seems to ignore the fact that dividend funds have very different sector weightings than total market funds, typically overweighting financial, energy, and utilities. How much of the performance of such funds is attributable to sector weightings alone? Second, not all companies issue dividends so you are making bets on the subset of companies that do. Arnott's RAFI combines several fundamental measures in addition to dividends and does not exlude as many companies as do funds based on dividend weighting alone. Seems to me - if you believe in fundamental weighting at all - this is a more sophisticated approach. ReplyInternational Dividend Investments Can Diversify Portfolio [view article]
I would also suggest looking at the ClosedEnd Funds which invest globally. I own EOD, BWC, BGY, IAE, BRG, DHG, DGT, LOR AND LGI - together my yield is over 10% - with tremendous diversification. Within my entire CEF portfolio, we collect monthly and quarterly dividends from more than 1000 foreign companies. ReplyInternational Dividend ETFs [view article]
State Street has a new one - DWXIf nothing else it's interesting because it has a 25% cap on sector (financials, anyone?) and has 10% (capped) emerging market exposure. Reply
Debating 'Fundamental Weighting' and Indexing [view article]
The debate is moot considering the basic objective of the two types of funds are like comparing chickens to roosters. Your average Index fund, S&P, Russel, or any other is based on incresed valuation. Your basic fundamental indexing ETF is based on income producing yield. The best move for the average investor is to place the fundamental index funds in a tax deferred account, Roth IRA, Trad IRA, or 401 and grab the yields. Investing in traditional index funds could go either way in a tax deferred account or an open account. Diversity is still the key to making money. Replyts
Debating 'Fundamental Weighting' and Indexing [view article]
Assembling portfolios of companies ordered simply by the price a market has assigned them is perfectly fine as A method of assembling an index. But to give this method some sort of primacy seems self-evidently irrational.If you needed to buy 10 hens once a year, you probably you would do okay by simply going to the market, finding the 10-chicken-pen that the market has assigned the greatest value to, and buying those chickens, year in and year out.
But what if you went back to the market one year and, in addition to just the market price, each pen had another number which was the egg yield: the number of eggs laid during the past year divided by the market price? And another number: new chickens hatched divided by the market price?
In the former case the market has looked at all the pens and assigned each a value. This value is based part on past performance and part of future expectations. But you have no information how much of the value is based on actual performance and how much is based on expectations. In this case you have information about the entity, the chicken pen, but this information is secondary, derivative. The price is reflective of the value of the chicken pen, but it is not the value.
In the latter case you still have this secondary, derivative information of market price assigned. But now you have additional information, and this data is primary to the object itself: egg production and fertility numbers.
Instead of calling it a market cap index it really should be called a "high hopes and expectations" index because, though analysis on the hard fundamental data is part of the price assignation, no effort is made to order market-cap weighted indexes on anything other than that: market value. In this sense these types of indexes are ordered, by varying degrees, on the hopes and prayers of market participants.
Ordering hens or stocks in accordance with more objective performance measures does not totally expunge the index of hopes and prayers. You are basing this ordering on past performance in the hopes that past is predictive, which often it is not. But there is no doubt less hoping and praying, and therefore more science, inside a fundamental index than inside a cap-weight index.
There is indeed the problem that ordering indexes on fundamentals introduces overweighting to certain sectors, and these, and other problems, need to be addressed. But as we saw during the last great bubble, there were huge overweightings that happened inside of market-cap weighted indexes as well. What got overweighted was euphoria, irrational exuberance, and stocks getting priced higher and higher, growing more and more "valuable" simply because they kept going up and up, until many of the high priced chickens got their heads chopped off, ran around a little more, ran off a cliff, or simply keeled over, and died.
Buying a market-cap weighted index isn't as uncertain as buying 2 chickens in a bush, but more uncertain than buying a fundamentally-weighted index, which is closer to buying 1 chicken in hand.
We are always to some degree, even inside an index, picking stocks. There is a lot of slicing-and-dicing silliness going on around indexing, and more to come, but ordering and packaging securities in accordance with fundamentals such as earnings, sales, book value, or dividends is a valid way to construct an index. To do so is no less valid than ordering an index in lockstep to the values assigned to securities by a herd. Market herds can be smart, and most of the time correct, but sometimes they do stupid things. An index doesn't have to be constructed to slavishly follow them everywhere, even over a cliff, to be correct. Reply
Considine
Debating 'Fundamental Weighting' and Indexing [view article]
Nice article Dr. DeLong! I find the whole debate on this issue rather odd. The primacy of market cap weighted indices hinges on a strong version of market efficiency. Fundamental advocates point out a body of evidence that fundamental weights such as low P/E have historically led to high performance. Frankly, I find the market cap weight folks the more odd: they are pushing for the idea of strong market efficiency despite enormous evidence to the contrary.To suggest that market cap weighting is 'indexing' while some other weighting is 'active' is strange. Both rely on a fairly arbitrary assumption about how to weight assets. Market cap weighting will have less turnover, which is good, but is not enough to make the case that this is the 'best' way to create a portfolio in an asset class.
My biggest issue with fundamental indices is the way that they are promoted. Filters on fundamental value have resulted in high concentrations of certain asset classes. The dividend-focused approach tended to result in high exposure to financials, for example. Many investors did not really understand this.
Mr. Bogles comments quoted in this article are correct, but I also find Mr. Bogle's long-term insistence that it makes good sense to own at market cap weight is not compelling.
Cheers,
Geoff Reply
ts
Debating 'Fundamental Weighting' and Indexing [view article]
Irony: if or when everyone in the world adopts the efficient market religion and simply buys an index fund, the market will be maximally inefficient because there will be nobody left doing the head scratching analysis that supposedly renders the market efficient in the first place. So there is a symbiotic relationship between active and passive investors. Both need the other to make their version of extracting returns from the market possible. More passive investors means less stock analysis means more market inefficiency. More active investors means information is more fully, more quickly, priced, means more market efficiency. Stock pickers need indexers. Indexers need stock pickers. Both make the other's world go round. ReplyDebating 'Fundamental Weighting' and Indexing [view article]
"Fundamental Indexing" is just a bassackwards way of saying they're running a large, slow-trading, mechanical quantitative equity fund.Not that there's anything wrong with that style of trading! It's great, especially for a fund seeking relative outperformance, to be holding stocks with fundamental or valuation "anomalies," but let's call a spade a spade, it's *mechanical trading.*
I object only to the marketing aspect of its name. Reply
Shriver
Debating 'Fundamental Weighting' and Indexing [view article]
Good article. Good points. Thank you. ReplyEditors
General Discussion on DLS
Is this a buy or a sell? Reply