Index Funds Sure Don’t Seem Like Libor
Arguments that they lack transparency or may be subject to manipulation are largely off base.
Bloomberg, March 18, 2019.
Last month, the New York Times ran an op-ed that suggested index funds may not be as transparent as they seem or should be. The article, written by a Securities and Exchange Commission member and a University of California – Berkeley law professor also implied that the indexes on which the funds are based could be subject to manipulation and other abuses; at the very least, they may not be as neutral as some believe.
I heartily endorse any sentiment that mandates more timely and detailed disclosure of index-fund holdings. However, some of the authors’ claims and assumptions don’t stand up to close scrutiny.
Take the S&P 500 for example: It is made up of 1) stocks; 2) of companies based in the U. S.; 3) that are among the largest in the nation; 4) which have been picked by the S&P selection committee; and 5) are weighted on a market-capitalization basis. There is literally nothing in the preceding statement that can remotely be construed as anything approaching neutrality. We can perform the same exercise with any index, from the MSCI Emerging Markets Index to the Dow Jones Industrial Average to the Russell 3000 Index.
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I originally published this at Bloomberg, March 18, 2019. All of my Bloomberg columns can be found here and here.
