Allan Roth: Creating Alpha Through Beta Funds

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Random Walker
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Allan Roth: Creating Alpha Through Beta Funds

Post by Random Walker » Thu Oct 11, 2018 9:09 am

https://www.etf.com/sections/index-inve ... beta-funds

Index funds generally trail their corresponding indexes by an amount equal to their fees. Some passive funds can do better than that without deviating significantly from their mandate to adhere to their benchmark. Passive funds can add value with securities lending and patient trading. In this article Allan focuses on Vanguard’s practices. Fund companies will vary in how aggressively they approach securities lending and trading strategy. Companies can vary in the use of block trading and buy/hold ranges. The expense ratio is a strong start in evaluating a passive fund, but it doesn’t tell the whole story.

Dave

Allan Roth
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Re: Allan Roth: Creating Alpha Through Beta Funds

Post by Allan Roth » Thu Nov 15, 2018 10:20 am

It would be great if one could measure net expense ratio - gross expense ratio +/- profits to shareholders from securities lending and trading practices.

afan
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Re: Allan Roth: Creating Alpha Through Beta Funds

Post by afan » Thu Nov 15, 2018 3:07 pm

For an honest index fund that would be the difference in performance between the index and the fund.

For a fund that includes an active component this calculation would not work. The active bets would swamp these sources of efficiency.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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JoMoney
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Re: Allan Roth: Creating Alpha Through Beta Funds

Post by JoMoney » Thu Nov 15, 2018 3:24 pm

Allan Roth wrote:
Thu Nov 15, 2018 10:20 am
It would be great if one could measure net expense ratio - gross expense ratio +/- profits to shareholders from securities lending and trading practices.
Maybe look at the returns in the annual report compared to the index it tracks over a period of years
-0.01% difference over a 10 year period certainly looks better than the stated "Expense Ratio"
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"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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