This index fund overview and worksheet link will guide you for your 401k. Index funds are managed through ‘full replication’ and/or a ‘sampling’ strategy. Sampling is used with a large index such as the Barclays Aggregate bond index. Sampling may result in tracking error, the variance in return from the index. For replication, tracking error occurs due to the timing and size of cash flows, transaction charges, and other expenses. The largest funds receive better-than-average execution and commission rates for their trades because they offer the broker community significant trading flows. Index fund managers have three essential tools at their disposal to replicate benchmarks: futures, exchange-traded funds, and slices. A slice is a basket of stocks that are weighted identically to the benchmark. Futures contracts are also used as a proxy for the entire index. A third type is exchange-traded funds (ETFs). Using any derivative instead of purchasing the actual physical security is suboptimal since this incurs tracking risk. Managing an index fund requires attention to detail and a talent for mathematics.
Big-Three-Index-Providers-EvaluationDownload
Big-Three-Index-Providers-EvaluationDownload
