Comments on: Fundamental vs Regular Index Funds/ETF’s http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm Building Wealth through Saving and Investing Sun, 14 Mar 2010 19:45:44 -0400 http://wordpress.org/?v=abc hourly 1 By: Invest the rest http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-38788 Invest the rest Tue, 10 Jun 2008 14:08:48 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-38788 DGI - you've hit the nail on the head. Fundamentally sounds companies are less affected by bubbles and bursts, and by investing in those companies you can get better risk adjusted returns. I know Buffet said he'd prefer a "bumpy 15% over a smooth 10%", but I don't think that applies to non-billionaires. I've looked into FI a lot, and it's hard to find an arguement against using it as a major position. The best part about it, it's available as a mutual fund, so no worries of low liquidity, etc. DGI – you’ve hit the nail on the head. Fundamentally sounds companies are less affected by bubbles and bursts, and by investing in those companies you can get better risk adjusted returns.
I know Buffet said he’d prefer a “bumpy 15% over a smooth 10%”, but I don’t think that applies to non-billionaires.
I’ve looked into FI a lot, and it’s hard to find an arguement against using it as a major position.
The best part about it, it’s available as a mutual fund, so no worries of low liquidity, etc.

]]> By: Peter http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-38231 Peter Fri, 06 Jun 2008 00:15:47 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-38231 Question from a newbie: From the perspective of returns, fees, and tax efficiency, how do fundamental index ETFs compare to cap-weighted value index ETFs, e.g. Vanguard VTV, VOE, and VBR? Question from a newbie:

From the perspective of returns, fees, and tax efficiency, how do fundamental index ETFs compare to cap-weighted value index ETFs, e.g. Vanguard VTV, VOE, and VBR?

]]> By: Dividend Growth Investor http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-38038 Dividend Growth Investor Wed, 04 Jun 2008 15:19:24 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-38038 The fund annual costs are an important yardstick. Sure they did outperform the market for the past 21 years. But was it using real money, or was it a backtest? It seems to me that the reason why fundamental indexes outperform the market is because most fundamentally sound companies were unaffected by the bursting of the technology bubble in 2000-2002. http://www.pro-financial.ca/proindexfunds/us_performance.html The fund annual costs are an important yardstick. Sure they did outperform the market for the past 21 years. But was it using real money, or was it a backtest?
It seems to me that the reason why fundamental indexes outperform the market is because most fundamentally sound companies were unaffected by the bursting of the technology bubble in 2000-2002.

http://www.pro-financial.ca/proindexfunds/us_performance.html

]]> By: The Financial Blogger http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-37990 The Financial Blogger Wed, 04 Jun 2008 09:23:51 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-37990 FT, Were you able to find Funadmental index funds existing over the past 5-10 years and compare it to your chart? I know for a fact that on paper, most trading strategies will present better returns than the market itself. However, when you get to the real world, for some unknown reasons, things end-up a different way ;-) FT,
Were you able to find Funadmental index funds existing over the past 5-10 years and compare it to your chart? I know for a fact that on paper, most trading strategies will present better returns than the market itself. However, when you get to the real world, for some unknown reasons, things end-up a different way ;-)

]]> By: Ed Rempel http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-37964 Ed Rempel Wed, 04 Jun 2008 03:24:45 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-37964 Hi FT, There is a big danger that fundamental indexing is nothing more than 20:20 hindsight. The way we believe they are mostly created is to go through the data on 100's of stats and pick a handful that performed best in the past. Then you can show how much better your new index based on those stats would have performed. Ken Fisher in his book "The Only 3 Questions you need to ask" claims that fundamental indexes have tended not to outperform ordinary indexes going forward. They only outperform in hindsight. Having said that, the 4 factors listed in your first article sound reasonable and I'm sure there must be many stats that would outperform regular indexes. My guess would be that these 4 factors would result in more turnover than regular indexes and more turnover almost always results in lower returns. Ed Hi FT,

There is a big danger that fundamental indexing is nothing more than 20:20 hindsight. The way we believe they are mostly created is to go through the data on 100’s of stats and pick a handful that performed best in the past. Then you can show how much better your new index based on those stats would have performed.

Ken Fisher in his book “The Only 3 Questions you need to ask” claims that fundamental indexes have tended not to outperform ordinary indexes going forward. They only outperform in hindsight.

Having said that, the 4 factors listed in your first article sound reasonable and I’m sure there must be many stats that would outperform regular indexes.

My guess would be that these 4 factors would result in more turnover than regular indexes and more turnover almost always results in lower returns.

Ed

]]> By: Cash Instinct http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-37961 Cash Instinct Wed, 04 Jun 2008 03:02:37 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-37961 Although it would be too much work to research, I wonder about the long-term effects of the costs of rebalancing and/or higher MER, capital gains, etc. I also wonder about the 20-year-long study, whether it is a enough long time frame in order to compare «fundamental» Vs «regular». Nonetheless, it is an interesting study. Although it would be too much work to research, I wonder about the long-term effects of the costs of rebalancing and/or higher MER, capital gains, etc.

I also wonder about the 20-year-long study, whether it is a enough long time frame in order to compare «fundamental» Vs «regular».

Nonetheless, it is an interesting study.

]]> By: FrugalTrader http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm/comment-page-1#comment-37885 FrugalTrader Tue, 03 Jun 2008 11:46:13 +0000 http://www.milliondollarjourney.com/fundamental-vs-regular-index-fundsetfs.htm#comment-37885 I forgot to mention in the post that, as noted by Preet yesterday, the more inefficient the market, the better the fundamental index performs. I forgot to mention in the post that, as noted by Preet yesterday, the more inefficient the market, the better the fundamental index performs.

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