Interesting Effect of Indexing
As index-linked securities have grown in availability and dropped in cost, investors have increasingly used them, often in attempts to market time. The result according to a recent study: worse performance. The abstract from the study:
Index-linked securities (like index mutual funds and passive ETFs) have been one of the most successful investment products in the last twenty years. But do they benefit individual investors? Using data from one of the largest brokerages in Germany, we find that retail users of these securities, compared to a matching sample of non-users, do not improve their portfolio performance. Further analysis reveals why. Their ability to do factor timing, which becomes easier with these securities, worsens.
via Jason Zweig