I guess I wanted to show that, in my opinion, indexes are still being “managed”. Not as actively as mutual funds but I stop short of using the word “passive” because I feel that index changes are still more frequent than we think, and the comments by the S&P chairman are showing that market timing is also a factor in their decision to include and exclude, not to mention that they change their weightings as well.

Ultimately, investing in indexes is not just about the index but about the managers of the index funds as well, how rigid / flexible they wish to stay with the index. Also, I had wished to bring up the discussion of accusations about index changes serving hedge fund managers - as the recent pop-up in Google stock price showed!

I had alluded to the fact that indexes work, or the “index effect” are countered by the length of time the stock stays in the index, so no disagreement there. In regards to the high turnover, it was the tech boom. Many stocks were being put in and out of indexes during that time. So there are times when an index could also resemble an active mutual fund. But it should also be said that normal mutual funds during those times were experiencing 200%+ turnover.

I have not discussed funds where the managers have a mandate to buy and hold (AIC perhaps?). That’s for another day.

Not sure why that turnover on that mutual fund is so high by the way. Doesn’t really make sense at all to me. I’ve heard that on average index funds have a turnover of 5%.

Not all index funds are created equally though!

The relatively small Royal Canadian index fund (tracking the TSE 300) reported 120% turnover in 1999 and 68% in 2000. Part of the explanation is due to it being smaller number of 300 stocks and changing compositions or weightings. You don’t have to exclude or include a company in an index to achieve turnover. Simply by adjusting the weighting of the position is enough to cause buys/sells.