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Greetings Fools,

I have run across some interesting index funds by Aetna. They are called Index Plus because their objective is to outperform a particular index. The method they use is to use 90% of the funds money to try to match the index, then use the remainder is weighted to stocks that are undervalued or have the best potential for growth, etc.

The idea seems pretty sound. They have three index plus funds for large cap, mid cap and small cap.
The problem is they are with Aetna and these funds have a front end sales charge and if purchased through some place like a discount broker or other fund company you have a transaction fee on top of that.

Does anyone know of any other funds with the same or similar objective. I am adding an S P 500 index fund to my portfolio and this index plus idea intrigues me.

Any thoughts or comments would be appreciated.
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This from Morningstar may be worth considering.

In the tame old days before Nasdaq dominated the galaxy (say, 1997), enhanced index funds were indeed the rage. Their vow was modest--to edge past the index, year in and year out--but then again, so were our collective ambitions. Plus, the logic seemed sound. Since portfolio managers will generally perform poorly if they are missing the year's top sector (try competing in 1999 while being light in technology!), why take that chance? Why not copy the indexes' general characteristics and whip those blind, dumb animals at the stock-by-stock level? That way, portfolio managers could show off their greatest strength, their in-depth knowledge of companies.

As is so often the case with theories, the logic was more convincing than the results. In aggregate, enhanced index funds haven't been. Sure, there have been a few winners. Schwab Analytics SWANX has beaten the S&P 500 over its four-year history, Vanguard Growth & Income VQNPX has slightly better risk-adjusted performance than the benchmark over its trailing three years, and Aetna Index Plus Large Cap AELAX has been on a roll. But for every winner, there has been a loser, like the offerings from PIMCO, J.P. Morgan, and Nations. And even the winners have alternated good and bad years--an unpleasant trait for a fund category that promises above else the virtue of consistency.

So, Jerry, while we can't quite call the group a failure, we must also acknowledge that it didn't fulfill its promise. Quiet obscurity would seem an appropriate fate.


There is also this TMF article which offers some interesting ideas on the "enhanced indexing" concept.

http://www.fool.com/news/foth/2000/foth000425.htm



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Does anyone know of any other funds with the same or similar objective. I am adding an S P 500 index fund to my portfolio
and this index plus idea intrigues me.


Several of the TIAA-CREF funds use a similar approach. They have both an indexed portion of the fund and an actively managed portion. The objective is to try to beat the relevant index. Unlike some of the enchanced index funds, the manager is not locked in to the size of each component.

Although the TIAA-CREF mutual funds are relatively new (most of them are about 3 years old; a few more were added very recently), the organization has years of experience using this approach in its retirement annuities.

The TIAA-CREF Growth and Income Fund (TIGIX) is basically an S&P Index fund with a managed component; the TIAA-CREF Growth Equity (TIGEX) is, if I recall correctly, the Growth portion of the Russell 3000 with an actively managed component. The international fund uses a similar approach.

TIAA-CREF funds have low expenses (although not as low as Vanguard). www.tiaa-cref.org for more info.

jtmitch

Disclosure: I have TIAA-CREF mutual funds and retirement annuities among several other investment vehicles; I have been pleased with them and feel that, like Vanguard, they largely have the shareholders' interests at heart.
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