TITLE

Man or machine?

AUTHOR(S)
Shuttleworth, John
PUB. DATE
October 2002
SOURCE
Accountancy;Oct2002, Vol. 130 Issue 1310, p61
SOURCE TYPE
Trade Publication
DOC. TYPE
Article
ABSTRACT
The article focuses on the index tracking investment technique and its' advantages over investment management. Index tracking is a simple technique in which a computer allocates the investor's money, buying investments that mechanistically replicate some index such as the Financial Times and the London Stock Exchange index. Performance monitoring thus becomes easier. Moreover, the investor is free to concentrate on how much risk to take and how best to diversify risk. In this way investors will save their time that they spend on choice of investment manager. Common sense says that roughly half active managers should outperform the index and half should underperform. In practice it is worse because of their lower costs, index-trackers outperform roughly 60% of active managers. And worse still, the outperforming active managers in one period seem not to repeat in the next. Index tracking is cheap, with lower costs due to lower overheads and fewer transactions. The very biggest trackers cross their internal buyers and sellers, thus save a modest amount of commission and avoid market spread.
ACCESSION #
12149431

 

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