Active Index Investing

This edited collection is a physically massive volume comprising 31 chapters related to index investing. The title is an oxymoron intended to communicate the significant work that goes into both managing an index fund as well as the important asset allocation decisions that even the most passive of investors must make.

The book is divided into five parts:

The indexing revolution: theory and practice

Benchmark: the foundation for indexing

The ever-expanding variety and flexibility of index products

Managing index funds: it's anything but passive!

Putting it all together: how to use index products to build an efficient, risk-controlled investment strategy

Opening chapters review the history as well as the theoretical and empirical justifications for indexing. These are well written and highly informative. After that, things start to go down hill. The book commits many of the sins that plague poor edited collections. Some chapters lack depth or drift off topic. There is a lot of overlap between chapters and many topics aren't addressed. I searched this book in vain for a discussion of the investment fees charged by trustees of exchange traded funds. There is a chapter on indexes for hedge fund performance that has nothing to do with indexed investing. Philosophically, many of the authors seem uncommitted to indexing. Several describe indexing as a "core" investment strategy that should be supplemented with active portfolios or active overlays. The editor felt compelled to clarify points by inserting "editors notes" into several chapters. Other information, rather than being incorporated into the main discussion, is relegated to side bars. In my opinion the book is bloated at 688 pages. I would have preferred 250 focused, well written pages.

That being said, there is plenty of information here. You will learn about how indexes are constructed as well as the pitfalls of poor index design. While many discussions of indexing focus on just equities, you will find here information on fixed income, real estate and socially responsible indexing. There is plenty of information on indexing of international investments. Enhanced index strategies are described.

The book is not the final word on passive investing, but it will certainly get your feet wet. Despite its limitations, it is well worth a few hours of browsing.

Contents

1. Indexing is active: the meaning of active indexing and the interconnected themes of the book

The indexing revolution: theory and practice

2. The foundations of indexing: theoretical and practical underpinnings of a heretical concept

3. The ever-evolving uses of indexing: why the active versus index debate is over

4. Market uncertainty and the role of indexing

Benchmark: the foundation for indexing

5. The vital importance and fundamental uses of benchmarks

6. Perfection impossible: best practices for index construction

7. The ideal index construction

8. U.S. equity benchmarks - broad-cap, size, and style indexes: slicing and dicing the U.S. equity market

9. International/global equity benchmarks for North American investors

10. Fixed-income benchmarks

11. Hedge found benchmarks and asset allocation

12. Using indexes as analytical tools: viewing changes in the world's stock markets through the benchmarks

13. Socially responsible investment and index benchmarks

The ever-expanding variety and flexibility of index products

14. The wide world of index products: building blocks for an efficient portfolio

15. Enhanced indexing: adding index alpha in a disciplined, risk-controlled manner

16. Exchange-traded funds: a flexible and efficient investment tool

17. Indexing real estate

18. Active indexing: sophisticated strategies with index vehicles

Managing index funds: it's anything but passive!

19. Fundamental index portfolio management techniques

20. The unique challenges of U.S. equity index management

21. Delivering performance in international equity indexing

22. Managing fixed-income index funds

23. Managing exchange-traded funds

24. Index-based separately managed accounts: delivering on the performance promise

Putting it all together: how to use index products to build an efficient, risk-controlled investment strategy

25. Choosing among index vehicles: how does an institutional investor select an investment product?

26. How and why large pension plans use index-based strategies as their core investments

27. Tax-efficient indexation

28. Indexing for advisors: a sophisticated strategy for professional investment advisors and their clients

29. Indexing for individual investors

30. Indexing at the core: the four key axioms for long-term investment success

31. The future of indexing: the revolution has just begun!
 

 

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