Dow dumps GM and Citi. Cisco and Travelers Insurance are in.
- Sunny Sarkar
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Dow dumps GM and Citi. Cisco and Travelers Insurance are in.
Not that we didn't see that coming.
Dow ETFs forced to sell low and buy high.
Dow ETFs forced to sell low and buy high.
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GM in Indexes
This makes me wonder about the large cap index funds that track the Dow, S&P500, Russell 1000, etc: Did these indexes hold onto GM for the whole ride down? Are these funds just now selling upon its official bankruptcy? Wouldn't you think the Dow or S&P would've kicked GM out long ago based on their own internal criteria?
Perhaps a small chink in the armor for indexing - its a long ride down before a large company like GM, Enron, WorldCom is kicked out. Not sure how much of a drag that one collapsing stock would have on returns, as the index would be forced to sell more and more as the stocks market caps gets smaller.
Am I missing something on this?
Perhaps a small chink in the armor for indexing - its a long ride down before a large company like GM, Enron, WorldCom is kicked out. Not sure how much of a drag that one collapsing stock would have on returns, as the index would be forced to sell more and more as the stocks market caps gets smaller.
Am I missing something on this?
It has been posted on this forum before that Vanguard's Gus Sauter has estimated that the S&P 500 index fund loses 0.25% per year to front-running. You can call that small if you want, but it's greater than the fund's expense ratio.
If the bottom falls out of a stock such that it no longer belongs in a given index, how and when the stock is kicked out of the index is a matter of each index's policy. Some indexes are easier to front-run than others. The Russell 2000 has a reputation for being easy to front-run, being easier to determine how and when it will change.
Mike
A fund tracking a capitalization-weighted index like the S&P 500 does not have to trade as stock prices fall (or rise). That's the beauty of cap weighting, and the reason why funds tracking such indexes--especially "we'll take everything, please" indexes like the DJ-Wilshire 5000--can be very tax efficient.Perhaps a small chink in the armor for indexing - its a long ride down before a large company like GM, Enron, WorldCom is kicked out. Not sure how much of a drag that one collapsing stock would have on returns, as the index would be forced to sell more and more as the stocks market caps gets smaller.
If the bottom falls out of a stock such that it no longer belongs in a given index, how and when the stock is kicked out of the index is a matter of each index's policy. Some indexes are easier to front-run than others. The Russell 2000 has a reputation for being easy to front-run, being easier to determine how and when it will change.
Mike
- simplesimon
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The index wouldn't have to sell if the market cap gets smaller...the smaller price already makes market cap smaller.Compounding wrote:Perhaps a small chink in the armor for indexing - its a long ride down before a large company like GM, Enron, WorldCom is kicked out. Not sure how much of a drag that one collapsing stock would have on returns, as the index would be forced to sell more and more as the stocks market caps gets smaller.
Edit: Oh I see that savermike has already mentioned this.
Wait?
.
Since GM went into bankruptcy and has been delisted from the NYSE and now trades over the counter, why are they waiting until June 8 to do the actually replacement of GM with CISCO in the Dow?
Thank you.
Since GM went into bankruptcy and has been delisted from the NYSE and now trades over the counter, why are they waiting until June 8 to do the actually replacement of GM with CISCO in the Dow?
Thank you.
Randy |
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