Australian (ASX) Stock Market Forum

Index funds are Communist

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Darc Knight said:
Yep thats what I'm doing, avoiding them on the way down.
Valuers are factoring in a margin for how much Index Funds are inflating values. The larger the Company is in the Index, the larger the Index Fund effect inflates its value apparently.

I guess that's some of the reason Apple, Amazon etc are over valued?
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One of those feedback loop feeding on itself I guess.

So AA got big on its growth; the market likes so more money pours in; it got bigger; index fund buys big, making big bigger.

Then everyone assumes that smart analysts are following the big guys so it can't be that wrong.

Goes on until something disappoints and pop it goes.
 
moXJO said:
Another article discusses index funds.
https://www.google.com.au/amp/s/seekingalpha.com/amp/article/4077202-danger-index-funds
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Wondering if it is possible these articles about index fund being a bad idea, and there are some merits to that argument as others have pointed out above...

But is it possible that they're hit pieces? You know, enticing investors back into the active, smart, professional money managers who does just as poorly?

With sptrawler's recent points on Labor trying to discourage SMSF; these articles about how bad Indexing is... someone's losing prestige and trying to push and lure people back in I reckon.
 
luutzu said:
Wondering if it is possible these articles about index fund being a bad idea, and there are some merits to that argument as others have pointed out above...

But is it possible that they're hit pieces? You know, enticing investors back into the active, smart, professional money managers who does just as poorly?

With sptrawler's recent points on Labor trying to discourage SMSF; these articles about how bad Indexing is... someone's losing prestige and trying to push and lure people back in I reckon.
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It could be fund managers putting on hit pieces.
But at some point doesn’t the market die off, if index funds are the go to for the majority?
What about companies coming to market for money?
Will the pool of funds be smaller?

Seems like a few issues for future trading.

Australian options were big for a while and then died. You literally had to force a mm for a price. It felt like it turned into a very narrow field. Possibly due to cfds coming onto market at the time.
No idea on options trading recently though.

But trading trends do change. Look at crypto coin for example. Funds were furiously pumped into it. And they were basically worthless.
Makes me wonder what the numbers of share traders there are under the age of 30 these days.
 
luutzu said:
But is it possible that they're hit pieces? You know, enticing investors back into the active, smart, professional money managers who does just as poorly?
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My comments are my own original thoughts and I sure aren’t a professional money manager.

I do agree with the basic thought though that professional managers would like to have more funds under their management.

On that note I’ll simply say that I’d take indexing over them anyday and that comes from having once lost serious $$$ due to *** professional manager piling into the .com bubble, an act which amounts to outright incompetence in my view. If a professional can’t spot a bubble then they’re in the wrong job.

My view is that people should manage their own financial decisions so far as possible. For those not interested or able, an index fund with equal weighting not based on market cap, so that’s 0.5% into each of the ASX200 stocks, should have less group think aspects when compared to one which tracks the index as such with market cap weighting.

Make sure the fund does actually own the underlying assets - anything synthetic is prone to blowing up in a crisis.
 
luutzu said:
One of those feedback loop feeding on itself I guess.

So AA got big on its growth; the market likes so more money pours in; it got bigger; index fund buys big, making big bigger.

Then everyone assumes that smart analysts are following the big guys so it can't be that wrong.

Goes on until something disappoints and pop it goes.
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You think the theory of Index Funds over valuing index Stocks might be a con?

I'm no Economist, but if something is being blindly bought in bulk due to its inclusion in an Index, wouldn't that inflate it's market Price? Price and Demand?

Secondly, wouldn't it's market value then exceed it's Intrinsic value and keep on doing so?
 
I have stayed away from eft, but as I have said earlier, I do have some in lics. As smurph and others have said, index funds that follow the market, by their nature have to sell when the market goes down, from my understanding lics dont have a requirement to do this.
Someone could correct me if I'm wrong, again it is only my belief.
 
Smurf1976 said:
What I’m concerned about though is that according to the reports I’ve heard (seemed credible but I’ve no way to prove or disprove) the index funds and algorithmic traders combined account for ~90% of trading volume of stocks (referring specifically to the US S&P500 stocks).
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In 2017 Index Funds accounted for 35℅, so 35-40% now?
No idea about Al Trading.
 
sptrawler said:
As smurph and others have said, index funds that follow the market, by their nature have to sell when the market goes down, from my understanding lics dont have a requirement to do this.
Someone could correct me if I'm wrong, again it is only my belief.
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Wouldn't they only have to sell if the people investing in them wanted to redeem their capital?

Otherwise they just stay 100% invested the whole time and the value of the index fund portfolio just goes up and down with the market (index). STW (tracks the ASX200) pays distributions/dividend payments quarterley, VAS(tracks the ASX300) does the same - so one could live off the distributions/dividend payments and keep capital 100% invested through the ups and downs which would mean no selling when the market goes down.

For those still working, they may invest a set amount over a set period, ie each month they put $1,000 into the market index fund and it is like dollar cost averaging into the index - so when the market is down they buy more units - no need to sell - eventual goal is to live off the distributions/dividends when they are large enough - they feel well diversified as their capital is invested in top 200/300 stocks.
 
sptrawler said:
I have stayed away from eft, but as I have said earlier, I do have some in lics. As smurph and others have said, index funds that follow the market, by their nature have to sell when the market goes down, from my understanding lics dont have a requirement to do this.
Someone could correct me if I'm wrong, again it is only my belief.
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I suppose they don't have to. But then their bonuses dictate that they better follow the market.

As they say, it's better for your genius and paycheck if you follow the crowd and everybody got it wrong, too. That is better than trying to be a hero, risk your job and look stupid when you're wrong... wrong through either being wrong or just early.

Jeez, this is what a first world problem look like... too much money we don't know what to do with.
 
I wonder if there is any info on for Australia on what percentage of market participants actually even consider company fundamentals? Firstly you have index funds, then you have high frequency trading, AI, quant strategies, etc, then on top of that you have the pure chartists/techinical traders as well as the macro hedge funds. Whats left over is those who actually look at company fundamentals (certain professional and retail investors/speculators). My guess is that people that actually look at company specific fundamentals would make up no more than 40-50% of the market in Australia and in the U.S. it would be something like 20-30%. I would be interested to see if anybody has any hard data on this.
 
Value Hunter said:
I wonder if there is any info on for Australia on what percentage of market participants actually even consider company fundamentals? Firstly you have index funds, then you have high frequency trading, AI, quant strategies, etc, then on top of that you have the pure chartists/techinical traders as well as the macro hedge funds. Whats left over is those who actually look at company fundamentals (certain professional and retail investors/speculators). My guess is that people that actually look at company specific fundamentals would make up no more than 40-50% of the market in Australia and in the U.S. it would be something like 20-30%. I would be interested to see if anybody has any hard data on this.
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Not sure how you would find this kind of data?

Maybe start a thread here with a poll asking people's style towards the market, ie Indexing, LIC's, Dividend Income, Fundamental, Systematic, Discretionary - not sure what categories to put them in.

That would at least give us a snapshot of the styles applied among our community here.
 
As far as I know index funds do not participate in these volatile market moves. Sure redemptions are more likely to occur when the market is falling off a cliff, but i would assume most investors in index funds are there precisely to not worry about the short or even med term fluctuations.
 
sptrawler said:
I have stayed away from eft, but as I have said earlier, I do have some in lics. As smurph and others have said, index funds that follow the market, by their nature have to sell when the market goes down, from my understanding lics dont have a requirement to do this.
Someone could correct me if I'm wrong, again it is only my belief.
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Well the LIC's that I bought, not long before the virus took hold have recovered remarkedly well and paid a dividend through the crisis AFI and MLT. I'm impressed, which by the way is fairly easy to do.lol
The banks I bought for dividend have paid FA and I'm still down heaps on purchase price, which I purchased 10 years ago.
Yes you have to hate those banks, someone should close them down and let borrowers get their loans through the pawn brokers.lol
 
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sptrawler said:
Well the LIC's that I bought, not long before the virus took hold have recovered remarkedly well and paid a dividend through the crisis AFI and MLT. I'm impressed, which by the way is fairly easy to do.lol
The banks I bought for dividend have paid FA and I'm still down heaps on purchase price, which I purchased 10 years ago.
Yes you have to hate those banks, someone should close them down and let borrowers get their loans through the pawn brokers.lol
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Not up with the price movements but I do know my income will be up as I hold more of them. Case in point being WHF as it will be up by around 8% for the forthcoming payment compared with the pcp. Participating in the SPP also helped of course.

May not necessarily apply with the ETFs I hold although I have purchased more.

It's the main reason I invest in the share market. Prices seem to go up or down or somewhere in between the two for some strange reason.
 
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