Index Fund Performance
for PSCH, PSCE and IJT
On one hand, a lengthy window of observation provides a heap of data for a thorough analysis of performance. On the other hand, the broad-based approach has its drawbacks as well. One stumper springs from the dynamism within the financial forum. Due to the explosive growth of index funds in the millennium, a prolonged timespan has the side effect of casting aside numerous entrants that have stepped into the arena only in the recent past.
For this reason, the wily investor has to strike a balance between the conflicting factors in order to pick an apt window of evaluation. In striking a compromise, a time frame of three years seems like a fitting choice in most cases.
From a different stance, the financial crisis of 2008 was a watershed in the global economy. In recognition of the landmark, a duration of five years ending in spring 2013 has the advantage of spanning the epic fiasco and its aftermath. For this reason, the longer window of half a decade can provide a host of pointers on the true nature of motley markets.
In addition to grokking the price action in the arena, the deft investor takes into account a number of additional factors relating to the short run as well as the long range. A case in point is a minimal level of liquidity needed for the artful player to enter and exit a given market in a timely fashion.
A second hallmark of the savvy investor is an aversion for levered vehicles. The reason lies in the constant threat of sudden death and/or gradual demise that besets any type of rickety scheme based on high gearing. Due to the specter of certain doom, only a heedless speculator lusts after shaky contraptions pumped up by the gimmicks of leverage. In other words, the sober investor relies only on sturdy rigs that move with the target market in a direct and forthright way.
In sifting through a database of index funds focused on smallish firms, a straightforward approach is to begin with a muster of the front-runners in the field. Then the other factors such as liquidity and risk can be brought to bear on the appraisal.
In line with this thrust, our search begins with a tally of raw performance over the course of three years ending in spring 2013. The resulting list of candidates is then whittled down by the duo of secondary screens. As we noted above, the first filter deals with the liquidity of the asset in the marketplace. Meanwhile the second criterion concerns the directness of the setup; that is, the absence of leverage.
Based on this routine, the top 3 index funds turned out to be PSCH, PSCE and IJT. These pools focus respectively on the healthcare sector, energy market, and growth stocks.
Within the ranks of acceptable funds based on bantam stocks, PSCH turned out to be the clear winner. The return on investment for the spearhead displayed a series of higher peaks as well as rising troughs over the span of three years following its debut in the stock market in spring 2010.
Of the pair of runners-up, the average payoff for PSCE was comparable to the turnout for IJT. On the other hand, the latter vehicle was a lot less volatile compared to the former. For this reason, IJT was the better choice for the genuine investor.
To place the performance of the high flyers in context, the eagles were compared against a couple of renowned benchmarks of the bourse. Looking at the big picture, the Standard & Poor’s index of 500 giants stands out as a popular proxy for the stock market as a whole. Meanwhile the Russell 2000 Index is arguably the leading beacon within the vale of bantam stocks.
Each of the foregoing yardsticks has spawned an index fund of its own. The offshoot vehicles carry the ticker symbols of SPY and IWM respectively. On the bright side, the trio of winning funds for smallcap stocks – namely, PSCH, PSCE and IJT – trounced the standard benchmarks of the bourse by a comfortable margin.
NOTE: The full briefing is a document in PDF form, available for online viewing or offline download. The publication, listed under the title of “Smallcap ETF Review for Investing in Top Markets”, resides at the Library at MintKit Core.