What a year it was

January 01, 2002

Any way you slice it, from U.S. large growth to the Philippines, 2001 was not kind to equity indexes. While the United States was busy trying to cope with a massive terrorist attack, the rest of the world joined it in an uncharacteristically uni-form march toward recession. Index performance was bad in the United States, but it turns out it was even worse overseas. MSCI had the United States pegged at -16.21% for the year and the World ex-USA at a dismal -22.68%. Although it was mostly a disap-pointing year, there were a handful of standouts. Who was top per-former? FTSE has Morrocco coming in at a whopping +140.83%. And in second, a sweet irony flying in the face of the "index effect" concept was Sri Lanka, +50.50%, recently dropped from MSCI's emerging-markets in-dex. Trailing the pack were Luxembourg, -49.97, and Egypt, -45.57%. To make some sweeping gener-alizations, the places to be in 2001 were small value (Dow, Russell & Barra U.S. small-value indexes were all among the top performers), much-maligned gold and precious metals and bonds-all gener-ally intuitive hedges against the large-growth fallout. And where not to be? Well, large growth, pretty much anywhere in Europe and (still) technology. Utilities and mid-cap stocks suffered again after one good year.
 
Dreams of Morocco
I once saw a piece that said if you'd started many years ago with a dollar and put all your money on what would be the best performer of fixed income or equity for each upcoming year, you'd be spectacularly wealthy today. (This, of course, is an impossible assumption.) Well, imagine the results had you picked the best per-forming index each year. Yes, we've entered the land of dreams, but just for fun, here is a sample of some of the best and worst perform-ing indexes for 2001.
 
The Top 10 Indexing Stories of 2001 1. MSCI Moves To Free Float.
Morgan Stanley Capital International announced its move to the new gold standard of indexing: free-float weighted indexes. Essentially, free-float weighting adjusts un-derlying stock weights in an index by taking into account only stock 

 

Indexes You Wish You'd Played in 2001
Index 2001 Return
FTSE Morocco 140.83%*
MSCI Sri Lanka 50.50%*
FTSI Korea 39.73%*
JSE Gold 29.65%
MSCI Russia 28.27%*
Wilshire 5000 (Equal Wtd) 28.06%
Russell 2000 Value 14.02%
Dow Jones Small Value 12.79%
Wilshire REIT 12.36%
Lehman Brothers Long Credit 12.16%
MSCI, FTSE, Dow Jones & Morningstar data as of 12/31/2001
All returns are total returns unless indicated. *Price return

For much more comprehensive data and spreadsheets, please visit www.indexes.cc

 

that is readily available to the open mar-ket. Thus, a company that is 80% held by the company's ownership would onlyhave 20% of its capitalization used for the purpose of the index's weighting. MSCI also changed its coverage from 60% to 85% of the capitalization of each market. MSCI announced that the move to free float would come in two phases, the second of which it plans to complete by May 31. With around $1 trillion benchmarked to MSCI indexes world-wide, the move has thus far proceeded with remarkably little market effect on money managers. With the MSCI move, now all major index providers have moved most of their indexes to free-float weighting. 

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