Comments on: The S&P 490 http://wheredoesallmymoneygo.com/the-sp-490/ A personal finance blog written by Preet Banerjee Sat, 11 Feb 2012 16:22:10 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Preet http://wheredoesallmymoneygo.com/the-sp-490/#comment-1043 Preet Wed, 10 Sep 2008 01:22:33 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1043 @45free - thanks for the note. I should point out that DOD is actually an ETN not an ETF - so you won't get the psychological high of dividends pouring into your account, and the IRS could actually decide to tax the gains as interest since it is actually a senior debt issue in structure and as far as I know, there is no consensus on the tax treatment. (p.s. I'm not normally such a sour-puss!) @45free – thanks for the note. I should point out that DOD is actually an ETN not an ETF – so you won’t get the psychological high of dividends pouring into your account, and the IRS could actually decide to tax the gains as interest since it is actually a senior debt issue in structure and as far as I know, there is no consensus on the tax treatment. (p.s. I’m not normally such a sour-puss!)

]]> By: MultifolDream$ http://wheredoesallmymoneygo.com/the-sp-490/#comment-1042 MultifolDream$ Tue, 09 Sep 2008 01:35:03 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1042 Thanks for the link Preet Thanks for the link Preet

]]> By: 45free http://wheredoesallmymoneygo.com/the-sp-490/#comment-1041 45free Mon, 08 Sep 2008 15:31:32 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1041 Hey Preet...another derivation of this is the Dogs of the Dow strategy where you buy the top 5 yielders on the DOW on Jan 1 and rebalance a year later, the theory being that the top yielders are undervalued relative to the market. Most studies show this to be a DOW beating strategy. There is even an ETF (DOD) that does this for you so no need to rebalance! Hey Preet…another derivation of this is the Dogs of the Dow strategy where you buy the top 5 yielders on the DOW on Jan 1 and rebalance a year later, the theory being that the top yielders are undervalued relative to the market. Most studies show this to be a DOW beating strategy. There is even an ETF (DOD) that does this for you so no need to rebalance!

]]> By: Preet http://wheredoesallmymoneygo.com/the-sp-490/#comment-1040 Preet Mon, 08 Sep 2008 14:39:18 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1040 @Michael James: a very good point since the top 10 stocks can make up 25% of the total value of the S&P 500. Assuming that half of the 10 are dropped after breaking through into the top 10, and half are bought after falling into the 490 then the turnover would be close to 12.5% extra per year if there was an annual rebalancing. This is more than double of a regular index. Unless someone could back test that to see if the performance gain outweighs the trading and taxation costs then it's probably best left a fictitious index! :) Come to think of it, I just quickly looked up how to calculate portfolio turnover and it seems quirky as it's calculated as the number of sales or buys (whichever is less) divided by the average monthly assets - again, this will give a lower turnover rate if the purchases/sales are larger cap stocks since a few stocks could dominate a portfolio so by dollar value the actual turnover could be higher than the calculation for portfolio turnover suggests... I'll do some more digging into that - could be a good post. This would indicate that the extra turnover would be closer to three times as much as a regular S&P500 tracking investment... not good. @Michael James: a very good point since the top 10 stocks can make up 25% of the total value of the S&P 500. Assuming that half of the 10 are dropped after breaking through into the top 10, and half are bought after falling into the 490 then the turnover would be close to 12.5% extra per year if there was an annual rebalancing. This is more than double of a regular index. Unless someone could back test that to see if the performance gain outweighs the trading and taxation costs then it’s probably best left a fictitious index! :)

Come to think of it, I just quickly looked up how to calculate portfolio turnover and it seems quirky as it’s calculated as the number of sales or buys (whichever is less) divided by the average monthly assets – again, this will give a lower turnover rate if the purchases/sales are larger cap stocks since a few stocks could dominate a portfolio so by dollar value the actual turnover could be higher than the calculation for portfolio turnover suggests… I’ll do some more digging into that – could be a good post. This would indicate that the extra turnover would be closer to three times as much as a regular S&P500 tracking investment… not good.

]]> By: Preet http://wheredoesallmymoneygo.com/the-sp-490/#comment-1039 Preet Mon, 08 Sep 2008 14:19:05 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1039 @MultifolDream$ - I have seen one or two index mutual funds that track the Wilshire 5000, but if you aren't limited to mutual funds then there is no shortage of ETFs to track those same indices - also, the costs are roughly 1/5th of the index mutual funds. Note that those indices are also cap weighted, and as such the S&P500, Wilshire 5000 and Russell 3000 all behave fairly similarly. <a href="http://finance.google.ca/finance?chdnp=0&chdd=0&chds=0&chdv=1&chvs=Linear&chdeh=0&chdet=1220904000000&chddm=493051&cmpto=AMEX:TMW;INDEXSP:.INX&cmptzos=-18000;-18000&q=NYSE:IWV&ntsp=0" rel="nofollow">Here is a link comparing three ETFs that track these indices.</a> @MultifolDream$ – I have seen one or two index mutual funds that track the Wilshire 5000, but if you aren’t limited to mutual funds then there is no shortage of ETFs to track those same indices – also, the costs are roughly 1/5th of the index mutual funds. Note that those indices are also cap weighted, and as such the S&P500, Wilshire 5000 and Russell 3000 all behave fairly similarly. Here is a link comparing three ETFs that track these indices.

]]> By: Michael James http://wheredoesallmymoneygo.com/the-sp-490/#comment-1038 Michael James Mon, 08 Sep 2008 02:29:31 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1038 It would be interesting to know how often the members of the top 10 stocks change. If it is frequent, then trading costs and taxes would cause a drag on the returns of this fictitious index. It would be interesting to know how often the members of the top 10 stocks change. If it is frequent, then trading costs and taxes would cause a drag on the returns of this fictitious index.

]]> By: MultifolDream$ http://wheredoesallmymoneygo.com/the-sp-490/#comment-1037 MultifolDream$ Mon, 08 Sep 2008 01:53:06 +0000 http://www.wheredoesallmymoneygo.com/?p=814#comment-1037 wow That's interesting ... unfortunately I haven't seen a Mutual Fund in Canada offered by the main banks, that follows Wilshire 5000 or Russell 3000. If you know one please share ... wow That’s interesting … unfortunately I haven’t seen a Mutual Fund in Canada offered by the main banks, that follows Wilshire 5000 or Russell 3000. If you know one please share …

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