Meet the Indexers

September 14, 2007

For those who want to meet the indexers, we've booked a session at the M Street Renaissance Hotel before the Art of Indexing. I'll be signing copies of my most recent book there. 

OK, my most recent book is from, around 2000, pre-Internet bust I think. I was very bullish on Q's at that time. But if you show up with a copy, I'll sign it. We'll be at ... let's see ... ILLY'S CAFÉ? Come ON Friedman, I told you to at least book something with free nuts and sofas. Where is the dignity in an Illy's Café? It's like Spinal Tap for index bloggers. Tom Lydon wouldn't do an Illy's. Ron DeLegge? He's going to be at least a TGIF. Anyway, we'll be there (I'll be there anyway) at 2:00 p.m. You've got until 2:15 p.m.

It must be Friday before another transatlantic.

What's going on in indexing, or should I say "indexing?" Aside from visions of Borat-endorsed ETFs dancing through my head, it's all munis, and now SPA. Enter SPA ETFs ... first in London today and then soon in the U.S. They are branding themselves as "fundamental indexers" but their funds are pure active. I mean in their 40-stock core index, they're working off of basically the whole Wilshire 5000 with some liquidity and concentration constraints, and they pick the 40 stocks that grade out best with their quantitative screener and then they EQUAL WEIGHT them.

You want volatility? You've got it. High octane, baby. Welcome to the next generation of indexing. Heather said that in her article, and I had to call her to task. Because these AIN'T indexes. They are pure active—just a little cheaper and fully automated on the picking part.

And I'll tell you what—the SPA people (who have exclusive deals on I think most of the MarketGrader indexes) had to be JUMPING WITH JOY when Barron's announced that THEIR 400 was going to be the MarketGrader 400 (SPA may have to lay a little extra licensing juice on for the Barron's name, but hey). I don't know ... coup city. Let's see how it translates. It's kind of a bold move to launch US only in Europe (though maybe not, as most of the limited US over there is pretty white bread). But then selling US active back to U.S. investors as a London manager with a U.S. quant shop ... well it's a new world out there.

Basically it's an extension of a trend that has seen the ETF market move from broad market, to ever-thinner slices, to alternative asset classes, to alternatively weighted indexes, and now leverage, and ever-more-active quant-driven products. If there's a case for active (and I'd say there is—see, for example Matt Hougan's analysis of Vanguard's active offerings), then ETFs have got to be a good way to deliver them. More tax-efficient, lower cost, etc. By the way, AMEX and you others who are working on active (you know who you are). WHEN ARE THEY LAUNCHING? Feel free to post an anonymous comment with your latest status w/ SEC. I'm sure they'll like that.

Hougan says he's got some good stuff coming up in his blog—his prediction for the first 5 exchange-traded products that will blow up, or "Hougan's 3 Bad ETFs," or something along those lines. I'm in a feel-good mood myself.  I'll try to keep that on my flight and in the walk to Illy's Café, where I'll see YOU on Sunday. My cell, if you miss me, is 646.269.2517. Come bearing party favors in addition to that wildly outdated and at this point completely useless book.

Find your next ETF

Reset All