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Usually these are just fluff pieces, but this one makes playing "spot the error" too easy.
"Every investor should have some exposure to the S&P 500 index" Why should I bias my portfolio toward large cap vs. say, VTSMX?
"Your return [on $10K] in the SNPBX would be $36,784 — a roughly 270% return" That would be a roughly 370% return. Rather, the total value of the investment, including both the original cost and the return would be $36,784.
The number is way off anyway. It assumes that the ER of the class B shares doesn't change for 30 years. But the class B shares convert to cheaper class A shares after 8 years, so the return is significantly higher than shown. Obviously still less than that of truly inexpensive funds.
This share class isn't open for sale. Even existing shareholders couldn't buy additional B shares after May 1, 2015.
You have to wonder how much the writer understands index funds when he includes a Fidelity (enhanced) index fund FLVEX among the most expensive in a category (large cap value). Only TIAA-CREF has a lower cost enhanced LCV index fund (per M*).
NASDX is .49% with a fee waiver (NDXKX is related but K class). NASDX is directly with Shelton, which I own (I used to own USNQX but sold it to purchase NASDX because it performed better). I suspect K class is through brokerages rather than NASDX which is directly held.
It looks like you're right about K shares being for supermarket platforms. It's a particularly nasty example of an NTF fund, though.
Most NTF funds add 25 basis points (often via a 12b-1 fee) to pay for the NTF platform. This one adds 50 basis points - 25 as a 12b-1 fee, and another 25 basis points for "Shareholder Services". You have to dig through the footnotes for this; the fee is buried as a part of "Other Expenses"
According to the semi-annual statement, Note 2, these are to compensate "other service providers ... for providing certain services to clients owning K Shares, including processing purchase and redemption transactions, assisting in other administrative details and providing other information with respect to each Fund. "
It gets better. In the 2000s, Schwab instituted a policy that required any fund on its NTF platform to sell its cheapest retail class NTF. That seems to be in play here. Since NASDX isn't sold NTF, Schwab so won't even sell NDXKX (allowing redemptions only).
The difference between USNQX and NASDX seems huge - about 2/3% per year over the past five years with only a tiny difference in ER. I'll have to look into their methodologies. At first glance this does seem to show that index funds are not fungible - management and methodology matter.
Hi @davidrmoran Granted, the below are not index funds, but a measure I chose of LC versus a mostly LC with a blend touch.
The stockcharts is an active link, so that you may move the slider on either end or both to obtain another date range (date, upper left of chart). You may also add and/or remove ticker symbols to plug in another of your choice. Add a comma at the end of current ticker, then the additional ticker.
VTI is currently about 76% large cap with the remainder being mid and small cap.......don't know if that number has remained similar through this chart range. Also that we know S&P has had adds and drops during this time frame, too.
@msf, I was comparing it with M* "S&P 500 TR USD", their default. Why does it do so much better than SPY? I certainly must stop using the M* default, criminy. I must have missed a whole chapter on that. 5/3/1y VFINX outperforms significantly, as you know. Still trying to see what notable value <SP500 equities adds. I may have 2 or a little more decades left. But my 30yo econ-savvy kids ask the same thing.
Lots of small differences happening. I don't know how much impact each has.
SPY is an "old style" ETF. It is structured as a UIT. UITs, unlike mutual funds, are only allowed to distribute the income they earn, they are not allowed to put it to work. So the underlying stock dividends pile up during the quarter until they are distributed (and presumably reinvested by investors). This "cash drag" likely explains some of the difference between SPY and VFINX, though I haven't looked at how much.
S&P indexes, unlike those of other index companies, are actively managed. Sometimes, notably in 2000, the S&P index committee makes some bad calls. For those who don't cringe at the phrase "lack of representation", here's one of many columns explaining how S&P manages its indexes and how it blew it in 2000 by swapping lots of old economy stocks for new economy stocks right at the peak of the dot com bubble. That may be part of the explanation why long term the S&P 500 has underperformed other indexes: http://www.thestreet.com/story/1305526/1/make-a-bundle-on-the-sps-rejects.html
I still don't know why NASDX does so much better than USNQX. It's hard to tell, though I suspect it is in how they track the index (for example, both may be supplementing replication with additional holdings for cash management, but doing that in different ways).
but good grief, what a dumbass thing to have be the default if you're trying to see how TWEIX or WVALX or whatever did again SP500 using $10k growth graphs.
I'd looked at that. Google doesn't tell you this, but these are on different dates. The NASDX list of top holdings is as of 3/31 (see M* summary page), and the USNQX list is three months older.
USNQX uses the e-mini NASDAQ 100 futures contract " to reduce any performance discrepancies between the Fund and its respective Index" (from prospectus). This is what I meant when writing that the funds use different techniques for tracking the index and managing cash flows.
The use of futures and other derivatives makes comparing stock percentages (even if calculated on the same date) nontrivial. One needs to add back the percentage contribution from each of the derivatives to know what the "effective" percentage of each stock is for a fund.
Comments
"Every investor should have some exposure to the S&P 500 index"
Why should I bias my portfolio toward large cap vs. say, VTSMX?
"Your return [on $10K] in the SNPBX would be $36,784 — a roughly 270% return"
That would be a roughly 370% return. Rather, the total value of the investment, including both the original cost and the return would be $36,784.
The number is way off anyway. It assumes that the ER of the class B shares doesn't change for 30 years. But the class B shares convert to cheaper class A shares after 8 years, so the return is significantly higher than shown. Obviously still less than that of truly inexpensive funds.
This share class isn't open for sale. Even existing shareholders couldn't buy additional B shares after May 1, 2015.
You have to wonder how much the writer understands index funds when he includes a Fidelity (enhanced) index fund FLVEX among the most expensive in a category (large cap value). Only TIAA-CREF has a lower cost enhanced LCV index fund (per M*).
Most NTF funds add 25 basis points (often via a 12b-1 fee) to pay for the NTF platform. This one adds 50 basis points - 25 as a 12b-1 fee, and another 25 basis points for "Shareholder Services". You have to dig through the footnotes for this; the fee is buried as a part of "Other Expenses"
According to the semi-annual statement, Note 2, these are to compensate "other service providers ... for providing certain services to clients owning K Shares, including processing purchase and redemption transactions, assisting in other administrative details and providing other information with respect to each Fund. "
It gets better. In the 2000s, Schwab instituted a policy that required any fund on its NTF platform to sell its cheapest retail class NTF. That seems to be in play here. Since NASDX isn't sold NTF, Schwab so won't even sell NDXKX (allowing redemptions only).
The difference between USNQX and NASDX seems huge - about 2/3% per year over the past five years with only a tiny difference in ER. I'll have to look into their methodologies. At first glance this does seem to show that index funds are not fungible - management and methodology matter.
Because LC outperforms it, from 1992 on, pretty consistently, by a little or a lot (small lot) ?
Over the past 10 years (5/6/06 to 5/5/16), VTSMX has outperformed 90.28% cumulative vs. 89.28% (yes, exactly 1.00% difference).
Granted, the below are not index funds, but a measure I chose of LC versus a mostly LC with a blend touch.
The stockcharts is an active link, so that you may move the slider on either end or both to obtain another date range (date, upper left of chart). You may also add and/or remove ticker symbols to plug in another of your choice. Add a comma at the end of current ticker, then the additional ticker.
VTI vs SPY total return inclusive. July 1999 to present.
VTI is currently about 76% large cap with the remainder being mid and small cap.......don't know if that number has remained similar through this chart range. Also that we know S&P has had adds and drops during this time frame, too.
Regards,
Catch
I was comparing it with M* "S&P 500 TR USD", their default. Why does it do so much better than SPY? I certainly must stop using the M* default, criminy. I must have missed a whole chapter on that.
5/3/1y VFINX outperforms significantly, as you know.
Still trying to see what notable value <SP500 equities adds. I may have 2 or a little more decades left. But my 30yo econ-savvy kids ask the same thing.
#3 for 3 years;
#1 for 5 years; and
#4 for 10 years.
In each instance, it beats out USNQX.
SPY is an "old style" ETF. It is structured as a UIT. UITs, unlike mutual funds, are only allowed to distribute the income they earn, they are not allowed to put it to work. So the underlying stock dividends pile up during the quarter until they are distributed (and presumably reinvested by investors). This "cash drag" likely explains some of the difference between SPY and VFINX, though I haven't looked at how much.
S&P indexes, unlike those of other index companies, are actively managed. Sometimes, notably in 2000, the S&P index committee makes some bad calls. For those who don't cringe at the phrase "lack of representation", here's one of many columns explaining how S&P manages its indexes and how it blew it in 2000 by swapping lots of old economy stocks for new economy stocks right at the peak of the dot com bubble. That may be part of the explanation why long term the S&P 500 has underperformed other indexes:
http://www.thestreet.com/story/1305526/1/make-a-bundle-on-the-sps-rejects.html
I still don't know why NASDX does so much better than USNQX. It's hard to tell, though I suspect it is in how they track the index (for example, both may be supplementing replication with additional holdings for cash management, but doing that in different ways).
but good grief, what a dumbass thing to have be the default if you're trying to see how TWEIX or WVALX or whatever did again SP500 using $10k growth graphs.
Nasdx
Security Net Assets
Apple Inc (AAPL) 9.51%
Microsoft Corp (MSFT) 6.39%
Facebook Inc A (FB) 5.09%
Amazon.com Inc (AMZN) 4.70%
Alphabet Inc C (GOOG) 3.50%
Intel Corp (INTC) 3.04%
Comcast Corp Class A (CMCSA) 3.03%
Alphabet Inc A (GOOGL) 2.92%
Cisco Systems Inc (CSCO) 2.86%
Gilead Sciences Inc (GILD) 2.66%
Usnqx
Security Net Assets
Apple Inc (AAPL) 10.17%
Microsoft Corp (MSFT) 7.68%
Amazon.com Inc (AMZN) 5.49%
Alphabet Inc C (GOOG) 4.55%
Nasdaq 100 E-Mini Mar16 Xcme 20160318 4.20%
Facebook Inc A (FB) 4.12%
Alphabet Inc A (GOOGL) 3.93%
Intel Corp (INTC) 2.82%
Gilead Sciences Inc (GILD) 2.53%
Cisco Systems Inc (CSCO) 2.39%
USNQX uses the e-mini NASDAQ 100 futures contract " to reduce any performance discrepancies between the Fund and its respective Index" (from prospectus). This is what I meant when writing that the funds use different techniques for tracking the index and managing cash flows.
The use of futures and other derivatives makes comparing stock percentages (even if calculated on the same date) nontrivial. One needs to add back the percentage contribution from each of the derivatives to know what the "effective" percentage of each stock is for a fund.