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Fundamental Indexing vs. Cap index
Old 03-30-2011, 06:04 PM   #1
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Fundamental Indexing vs. Cap index

Just finished The Fundamental Index, by Arnott, Hsu and West. Extremely impressive imo. Am curious if others read and their views, especially as it relates to cap indexes?

Bob
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Old 03-30-2011, 08:29 PM   #2
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There are some other threads on the topic. Search for Arnott.

Also, a lot of discussion over at bogleheads.org.

I am skeptical & can't quite see the difference between Arnott's funds & 'value' indexes. I haven't read the book, just some articles on the web.
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Old 03-31-2011, 01:47 AM   #3
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Quote:
Originally Posted by walkinwood View Post
There are some other threads on the topic. Search for Arnott.

Also, a lot of discussion over at bogleheads.org.

I am skeptical & can't quite see the difference between Arnott's funds & 'value' indexes. I haven't read the book, just some articles on the web.
I read that same book last year. As I understand it, the difference is that a standard "value" index is still cap-weighted, and to the extent that cap-weighting tends to put more of a fund's assets into a (comparatively) overpriced stock and less into an underpriced stock, it would under perform an otherwise comparable fundamentally-weighted index. That's the theory anyway. But fundamental weighting has expenses that cap-weighting doesn't. Whether these extra expenses would cancel out the higher performance of the fundamentally-weighted fund and leave it essentially equivalent to a value fund, I wouldn't want to venture a guess.
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Old 03-31-2011, 07:45 PM   #4
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kyounge, thanks.
You explained it to me before too & I forgot. Hopefully, it will stick this time.
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Old 03-31-2011, 08:07 PM   #5
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here's another thread on this topic...

Fundamental Indexing
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