tag:blogger.com,1999:blog-5433839636644874439.post1723556366023244090..comments2024-03-04T13:37:11.022+00:00Comments on Canadian Financial DIY: Book Review: The Power of Passive Investing by Richard FerriCanadianInvestorhttp://www.blogger.com/profile/05645767559302303541noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5433839636644874439.post-79497210509607988752011-03-07T21:45:35.355+00:002011-03-07T21:45:35.355+00:00DIY: No questions, the flaws in cap-weighted index...DIY: No questions, the flaws in cap-weighted indexes are real. But total-market indexes get around many of the problems of the S&P 500 and others that involve arbitrary selections.<br /><br />I agree that Arnott's book is very compelling, and I would never try to talk some out of using the RAFI strategy.Canadian Couch Potatohttp://canadiancouchpotato.comnoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-65572693598592929942011-03-07T18:46:54.790+00:002011-03-07T18:46:54.790+00:00Hi Potato, it's interesting to read about Ferr...Hi Potato, it's interesting to read about Ferri's interview and his being open to fundamental indexing, though it doesn't come across like that in the book. <br /><br />My first reaction a few years ago was also that fundamental weighting is nothing more than a value tilt. But that changed when I read more, especially the book. Decomposing the fundamental portfolio using the traditional factor analysis shows some excess return from a value tilt and some from small tilt but the fundamental portfolio still does better - there's something else. <br /><br />To me, given the theory-defying practical adjustments of the sort-of cap-weight grandaddy index the S&P 500 (arbitrary selection of constituents by a committee, float adjustment) and the risk-adjusted evidence of inferior cap-weight index performance (Sharpe, Sortino, Information ratios etc), the fundamental index method seems worth a serious look.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-70505611191466008002011-03-07T17:11:24.387+00:002011-03-07T17:11:24.387+00:00Nice review, DIY. I recently interviewed Ferri and...Nice review, DIY. I recently interviewed Ferri and asked him about fundamental indexing. He explained that he has no issues with the methodology. His concern is the way these funds are marketed as something new and original.<br /><br />In fact, many people believe that fundamental indexing is just a twist on value investing, the difference being that it weights securities by four factors rather than simply by price-to-book.<br /><br />There are are several indexes that tap the value premium in different ways. Each one will have its day in the sun and its day in the doghouse. But overall, I think most indexing advocates (including Ferri) would agree that if costs and tracking error are kept low, fundamental indexing is a perfectly good strategy.Canadian Couch Potatohttp://canadiancouchpotato.comnoreply@blogger.com