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"... [and] paying more attention to the performance of said funds, their index construction, and—not the least of it—the tax consequences of selling one fund to buy a cheaper one."
There are differences between indexes. Some are better designed than others (e.g. in terms of buffer zones) to facilitate running index funds, but at the possible cost of slightly higher tracking error (vs. the part of the market the index is "measuring").
Many indexes are constructed mechanically, while some (notably S&P) are comprised of hand-selected securities. Some are constructed with transparent rules, others are built with proprietary, secret models. Whatever rules are used may vary from index to index (e.g. S&P indexes usually require companies to be profitable). http://openmarkets.cmegroup.com/8808/inside-the-sp-500-an-active-committee
Index funds likewise have their own characteristics. They have different policies on lending securities (and how much of the revenue from those loans is plowed back into the fund). They have different policies on how quickly they must alter their portfolios in response to index changes (DFA in particular tries to trade tactically). Funds that track via sampling may take different approaches (e.g. how far down the cap scale they go in sampling securities from smaller companies in their index). This is especially significant in bond funds, where bonds come and go (they mature), and funds take different approaches in matching maturities, quality, convexity, etc. of their portfolio to their index.
While the differences between index funds may not be as wide as the differences between actively managed funds, selecting an index fund is not a matter of throwing a dart or picking the lowest cost one.
Comments
There are differences between indexes. Some are better designed than others (e.g. in terms of buffer zones) to facilitate running index funds, but at the possible cost of slightly higher tracking error (vs. the part of the market the index is "measuring").
Many indexes are constructed mechanically, while some (notably S&P) are comprised of hand-selected securities. Some are constructed with transparent rules, others are built with proprietary, secret models. Whatever rules are used may vary from index to index (e.g. S&P indexes usually require companies to be profitable).
http://openmarkets.cmegroup.com/8808/inside-the-sp-500-an-active-committee
Some (notably R2K) are more subject to front running than other larger cap and/or less widely followed indexes.
http://www.morningstar.com/advisor/t/102491623/the-russell-2000-index-s-achilles-heel.htm
[Ted linked that article two years ago]
http://www.mutualfundobserver.com/discuss/discussion/19286/the-russell-2000-index-s-achilles-heel
Index funds likewise have their own characteristics. They have different policies on lending securities (and how much of the revenue from those loans is plowed back into the fund). They have different policies on how quickly they must alter their portfolios in response to index changes (DFA in particular tries to trade tactically). Funds that track via sampling may take different approaches (e.g. how far down the cap scale they go in sampling securities from smaller companies in their index). This is especially significant in bond funds, where bonds come and go (they mature), and funds take different approaches in matching maturities, quality, convexity, etc. of their portfolio to their index.
While the differences between index funds may not be as wide as the differences between actively managed funds, selecting an index fund is not a matter of throwing a dart or picking the lowest cost one.