Vanguard Dives Into Dividends
Vanguard jumped into two of the hottest areas of the market recently, launching its first-ever dividend index fund and making plans to launch two funds into the red-hot mid-cap space.
The new Vanguard Dividend Appreciation Index Fund is designed to track the Mergent Select Dividend Index. The fund comes in two flavors-a traditional mutual fund and a VIPERs ETF. The ETF (VIG) charges just 28 basis points, the lowest expense ratio of any dividend fund. The traditional mutual fund (VDAIX) charges 40 basis points.
Meanwhile, Vanguard filed a registration statement with the SEC for new mid-cap value and mid-cap growth index funds. The funds will track the style indexes of the MSCI US Mid Cap 450 Index, and will be available as both Investors Shares and VIPERs.
All About Asia
Dow Jones expanded its Select Dividend index series into Asia, with the launch of three new indexes tracking the Asia/Pacific region, Asia and Japan, respectively. The Asia/Pacific index has already been licensed for two ETFs. That index pays a whopping 5.7 percent, the highest yield of any dividend index on the market. The Asia Select index yields 4.81 percent, while the Japan index barely registers at just 1.83 percent.
Dow Jones Going Global
Dow Jones and Wilshire Associates launched global versions of their popular U.S. real estate indexes, in the first part of a planned internationalization of their entire index family. The Dow Jones Wilshire Global Real Estate Securities Index covers all real estate companies worldwide, while the Dow Jones Wilshire Global REIT Index holds only the REITs within the larger index. REITs are a popular way to structure real estate holding companies in the U.S.; elsewhere in the world, real estate operating companies are the norm. The main index features companies from 24 countries, although 55 developed markets are eligible for inclusion.
DFA Embraces Growth?
Dimensional Fund Advisors (DFA) rolled out four new index funds offering investors one-stop "core" exposure to both the U.S. and ex-U.S. equity markets. The new funds are the first "core" equity funds offered by DFA, and will hold substantially all of the stocks on the market-including … to the horror of some DFA purists … large-cap and growth stocks. But don't worry: The funds still tilt in varying degrees towards small/value.
Russell Readies For Reconstitution
Russell reconstitution day is one of the biggest days on the indexing calendar, when stocks enter and exit the various Russell indexes and the index funds tracking those indexes re-jigger their portfolios to keep track. This year, that day falls on June 30.
As it has in the past, Russell will publish preliminary and vestigial indexes in the weeks surrounding the actual reconstitution date, in a move designed to encourage funds to trade around the June 30 deadline, rather than forcing all of their trades through on reconstitution day itself. Russell has come under mounting criticism for the costs associated with its reconstitution process.
One important improvement to the process this year is that companies that are scheduled to move from one index to another-and that undergo a corporate action, such as a merger or delisting, which automatically removes them from an index-will not be replaced prior to reconstitution. That should prevent funds from having to buy and flip companies that happen to have corporate activity in the waning days of June.
All Google-y Eyed
The S&P's Index Committee ended the suspense on March 23 when it anointed Google as the newest member of the S&P 500. Google shares soared 9 percent on the news-a classic example of the so-called "index effect." Google quickly took advantage of the move to price a $2 billion secondary offering, specifically targeted at index funds. That's something we are seeing more and more of these days.
Legg Mason And The MidCap Effect
In contrast, when S&P announced plans to add Legg Mason to the S&P 500 Index, nothing happened. As of 3:30 p.m. the next day, Legg Mason was trading down about 1 percent. One key difference between Legg Mason and Google is that Legg Mason is part of the S&P MidCap 400. The S&P MidCap 400 has performed very well over the past four years, and the amount of assets tied to that index has grown substantially. By some estimates, more than half the shares of Legg Mason that S&P 500 funds needed were moved directly from S&P MidCap 400 funds.
Hell Freezes Over
S&P launched two new indexes on March 27 that put it into direct competition with Dow Jones Wilshire and Russell in the market for "complete indexes." The S&P Completion Index covers substantially all U.S.-listed stocks not included in the S&P 500 Index, including more than 4,300 mid-, small- and micro-cap companies; the S&P Total Market Index (TMI) combines the Completion Index and the S&P 500 to cover substantially all publicly traded U.S. equities.
The S&P 500 and the S&P Completion Index are mutually exclusive, meaning that a stock added to the S&P 500 is automatically dropped from the S&P Completion Index, and vice-versa.
Of course, S&P already covers small- and mid-cap stocks with its (selective) S&P SmallCap 600 and S&P MidCap 400 indexes. The Completion Index differs from those indexes in two ways. First, it extends coverage into the micro-cap range. Second, the Completion index is ... well ... more complete: The S&P SmallCap 600 (and to a lesser extent the MidCap 400) only sample companies in their respective market capitalization ranges, while the Completion Index features everyone.
Clean Energy Redux
The Nasdaq continues to aggressively expand on the index front. The stock exchange has joined up with the environmental research group Clean Edge to develop a new index tracking the performance of clean energy companies in the U.S.
Although it's a Nasdaq index, the new Clean Edge Index features companies listed on both the NYSE and the Nasdaq. The Nasdaq made a major investment in its indexing technology last year, and they're looking to capitalize on that investment, even if it means launching indexes that include companies listed on other exchanges. (The Nasdaq would certainly point out that the vast majority of the Clean Edge Index components are listed on the Nasdaq, a sign of where the alternative energy industry is concentrated.)
AARP, The Indexer
AARP Financial has teamed up with State Street Global Advisors (SSgA) to launch three new "one-stop" mutual funds. To the AARP's credit, they've gone about this the right way, offering simple asset allocation strategies with index funds at the core. The new funds combine indexed exposure to U.S. stocks, international stocks and U.S. bonds in different percentages depending on a member's risk tolerance: Conservative, Moderate or Aggressive.
The funds all charge 50 basis points in expenses, with no loads.
New CalPERS Chief
The California Public Employees Retirement System (CalPERS) has hired Richard Reed to be its new chief investment officer. Read replaces Mark Anson, who left CalPERs in January to head the UK-based Hermes Asset Management. Read joins CalPERS from the post of deputy chief investment officer for Deutsche Bank, where he oversaw more than $250 billion in assets.
Buffett Bets Big
According to regulatory filings, the "Oracle of Omaha" has sold portfolio insurance to unnamed investors guaranteeing them against a major swoon in four different equity indexes. Buffett could be on the hook for as much as $14 billion if global markets go into a meltdown over next 15-20 years.
Bad Boys Made Good
Ten or fifteen years ago, NIKE and Chiquita were two of the most despised corporations in the world. NIKE employed thousands of workers in sweatshop conditions overseas, and Chiquita exploited its labor on environmentally destructive farms. But both companies have worked aggressively to clean up their acts, and recently, that work was recognized: On May 1, KLD Research & Analytics added both NIKE and Chiquita to the Domini 400 Index, the leading benchmark for socially responsible investors.
Mini-Style
Russell announced plans to launch two new style indexes tracking the growth and value sub-segments on the micro-cap universe. The indexes will be the first style indexes in the micro-cap space, and were expected to launch by the end of June.
Vanguard's Quant Fund Is Hot! Hot! Hot!
Vanguard closed the subscription period for its new Strategic Small-Cap Equity Fund almost two weeks early, as investors threw money at the soon-to-be-launched quantitative fund. Vanguard's in-house Quantitative Equity Group, or QEG, will manage the fund. The strong subscription highlights investors' interest in quantitative funds.
The fund will select stocks from the MSCI U.S. Small Cap 1750 Index, looking for equities that "offer a good balance between reasonable valuation and attractive growth prospects relative to their peers." It will charge 40 basis points.
SSgA Expands Quant Team
SSgA added six new members to its Advanced Research Center (ARC), an internal think-tank charged with sussing out new quantitative ways to beat the market. The six hires come primarily from academic backgrounds.
An Index Of One
Dow Jones and AIG launched 20 new commodity sub-indexes that are unique in the true sense of the word-each one tracks the performance of a single commodity. The indexes cover all 19 components of the broad DJ-AIG Commodity Index, as well as cocoa, which was a component until last year.
Why do you need an "Oil Commodity Index" when you could just track the price of oil, you ask? Because investing in "commodities" isn't really about investing in "commodities;" it is about investing in "commodities futures," and that makes all the difference.
Because commodities futures are financial instruments, the underlying movement in the commodity is just one of three parts of the potential return. Investors also make money from the collateral return on un-invested cash (commodities investors only use a portion of their cash to buy futures, with the remainder usually invested in interest-bearing Treasuries) and the "roll yield," which reflects the difference between the price of the future and the true spot price of the commodity. Oftentimes, the collateral and roll yield returns are much larger than the base commodity's price movement.
