Total return indices deserve more attention. They more closely represent what an investor actually takes home: the return of an index, plus dividends paid and reinvested in the index. Their better-known counterparts, which only track price changes in securities—often called “price return indices”1—get all the fanfare (see “Dow Hits 20,000 for the First Time”). Total Read more […]
This morning’s Financial Times highlighted a study of market volatility suggesting that return and volatility are inversely related — that “the correct response to an increase in volatility…is to exit the market.” This is certainly true in the short run, as the table below confirms. In months when the realized volatility of the S&P 500 was above Read more […]
By now we are all painfully aware that the U.S. equity market was essentially flat in 2015. The S&P 500’s total return was 1.38%, all of which was a function of dividend income — the index’s price return was -0.73%. Other large-cap averages were in the same ballpark — the Dow Industrials, e.g., logged a total Read more […]
As surely as we saw the ball drop in Times Square, at the turn of the year we see predictions that this year, unlike last, will be the year when active equity management shows its true value. Of course, similar predictions were made a year ago, and they didn’t work out particularly well, but that never seems to Read more […]
This week or next, millions of investors will be receiving statements reporting third quarter performance for their actively-managed mutual funds. Comparing active results to passive benchmarks has been a frustrating exercise more often than not. Two observations tell us that the third quarter is likely to be especially painful. We first observe that dispersion is low. Dispersion gives us Read more […]
On February 27, 2007… The Dow dropped 416 points. Freddie Mac announced it would no longer buy subprime loans that have a “high likelihood” of borrowers not meeting monthly payments. The VIX rose over 7 points that day. It’s been above 11.15 ever since. Until about an hour ago.
This morning’s Wall Street Journal brought word that the Dow Jones Industrial Average, which reached nominal all-times highs earlier this month, was in fact still 1% below “the record that counts,” which record is argued to be the all-time high in inflation-adjusted terms. The analysis uses the price of the Dow Industrials (e.g., last Friday’s Read more […]