| v> | | | | year, the best performing of all these funds was |
| Investors are faced with dozens of exchange | | | | the PowerShares large cap fund (PWB at |
| traded funds based on new, proprietary index | | | | +4.14%) followed by the Vanguard large growth |
| methodologies. Growth funds outperformed | | | | fund (VUG at +3.08%). One is based on an |
| value funds in 2007, but did funds based on new, | | | | active, proprietary index, the other on a traditional |
| proprietary methodologies outperform? The | | | | index.Ironically, the worst performing of the funds, |
| results are mixed. Growth stocks outperformed | | | | over the same time frame, was also a |
| value in 2007. Did the Exchange Traded Funds | | | | proprietary index fund -- the PowerShares small |
| based on newer, proprietary index methodologies | | | | cap fund (PWT, -6.63%) while the best |
| produce better results for growth stock investors | | | | performing of the small cap growth funds was |
| during the volatile, last half of the year than their | | | | also proprietary -- Morningstar's JKK which came |
| traditional peers, Russell and MSCI Barra?Two | | | | in at -0.94% for the last six months of the |
| providers of the new proprietary index | | | | year.The small cap growth funds based on the |
| methodologies are PowerShares and Morningstar. | | | | Russell and MSCI indexes had very similar |
| Did their growth funds produce better results? | | | | performance to each other. IWO's return was |
| Looking at four large cap and four small cap | | | | -4.15% for the last six months, -7.68% from the |
| growth funds in both index categories, the results | | | | high and +4.82% from the low and VBK's |
| are mixed.I've compared fund performance based | | | | performance was -4.29%, -7.50% and +4.63% |
| on three short time frames: July 2 to year-end | | | | respectively.For the last six months of the year, |
| (six months); October 9 (the market high) to | | | | large growth outperformed small growth, but the |
| year end; November 26 (the market low) to | | | | spread among the fund families was quite |
| year-end.The funds based on a proprietary index | | | | wide:PWB outperformed PWT by 10.77%VUG |
| are, from PowerShares:PWT - PowerShares Small | | | | outperformed VBK by 7.37%IWF outperformed |
| Cap GrowthPWB - PowerShares Large Cap | | | | IWO by 5.64%JKE outperformed JKK by |
| GrowthThese funds are based on the Dynamic | | | | 3.39%Although all the funds are in negative |
| Intellidex index, which according to PowerShares | | | | territory from the market high of October 9, all |
| applies "a rigorous 10-factor style-isolation process | | | | the large cap funds have continued to outperform |
| to objectively segregate companies into their | | | | their small cap brethren on a relative return |
| appropriate investment style and size universe. | | | | basis. But since the market low on November |
| Next, each company is thoroughly evaluated to | | | | 26, something different has happened.PWB has |
| determine its investment merit by analyzing | | | | outperformed PWT by only 1.68%VUG is dead |
| numerous unique financial characteristics from four | | | | even with VBKIWF has underperformed IWO by |
| broad financial perspectives: fundamental, | | | | 1.36%JKE has underperformed JKK by |
| valuation, timeliness and risk." That sounds an | | | | 1.63%Since large cap funds typically outperform |
| awfully lot like an actively managed fund.From | | | | at the end of a bull market, the six month returns |
| iShares, based on Morningstar index | | | | aren't unexpected. But the short-term |
| methodology:JKK - Morningstar Small Cap | | | | performance, since the market low on November |
| GrowthJKE - Morningstar Large Cap | | | | 26, seems out of character. Could it possibly |
| GrowthMorningstar is less descriptive. Their | | | | mean that the market has already discounted the |
| funds are managed by Barclays Global Fund | | | | coming recession, and that small growth |
| Advisors (iShares.com) and the fund literature | | | | companies are poised to move ahead? Or is it |
| simply states that stocks are selected based on | | | | simply a sign of just how oversold the small caps |
| "above-average 'growth' characteristics as | | | | were and how speculative market participants |
| determined by Morningstar's proprietary index | | | | have become at this stage of the game?One |
| methodology." Still, "above average" would | | | | measure of speculative enthusiasm is the relative |
| seem to imply that some companies that might | | | | strength of the Nasdaq Composite index |
| be included in an index based solely on market | | | | (COMPQ), covering more than 3,000 companies, |
| capitalization and broadly defined growth | | | | compared to the Nasdaq 100 (NDX), the 100 |
| characteristics would be left out. And that | | | | largest companies in the composite. Looking at |
| should, theoretically, improve returns.The | | | | the two indexes over the same three short-term |
| traditional index ETFs based on indexes from | | | | time periods we see similar results, indicating that |
| established index providers are:From Russell | | | | from November 26 to year end, investors were |
| Investments, which has provided index | | | | willing to speculate:NDX outperformed COMPQ by |
| methodologies for over 25 years:IWO - Russell | | | | 5.93% over the last six monthsNDX |
| 2000 Growth (small companies)IWF - Russell 1000 | | | | outperformed COMPQ by 1.44% from the |
| Growth ( large companies - also sold through | | | | market highNDX was only 42 basis points ahead |
| iShares)From MSCI Barra, which calculates over | | | | of COMPQ from the market low.Return |
| 100,000 equity, REIT and hedge fund indexes | | | | calculations courtesy of Returns are net of |
| daily:VBK - Vanguard Small Cap GrowthVUG - | | | | fees and exclude re-invested dividends. |
| Vanguard GrowthFor the last six months of the | | | | |