Index Funds: Made from Concentrate

Overview: This article states that whether large cap U.S. equity index funds really very different? In this article, three well known index funds: Vanguard Index 500, Schwab 1000, and Vanguard Total Stock Index are considered. As a reminder, the Vanguard Index 500 seeks to replicate the performance of the Standard & Poor's 500 Index, an index dominated by large cap U.S. stocks. The Schwab 1000 mimics the Schwab 1000 Index, an index consisting of the largest 1000 publicly traded U.S. companies. Finally, the Vanguard Total Stock Index seeks to replicate the aggregate performance of the Wilshire 5000 Total Stock Index, an index that consists of all U.S. stocks traded regularly in the NYSE, AMEX and OTC. Moreover, it is being explained under this article that differences in the median market cap and the total number of holdings in different index funds can lead us to believe that they are markedly different. The portfolios which are market-value weighted, and which share a common concentrated base of stocks, will very often generate comparable returns. Such a result will be contrary to the objectives of diversification, which prompted the use of several ostensibly different index funds. Thus, when indexing the large cap U.S. equity market, it may only require one fund to get the job done.

(Is this item miscategorized? Does it need more tags? Let us know.)

Format: HTML | Date: Aug 2002 | Pages: 1