Over the weekend a reader left a question in which he quoted an article about benchmarking to the DJ Wilshire Global Total Market Index instead of the usual suspects like the S&P 500.
I flippantly asked if he had a ticker symbol as some of these indices are difficult to follow and get information about. He came back with two symbols in the Yahoo Finance format; ^DWGT and ^DWG. These appear to be two separate indices and Yahoo, when I looked, did not have more than 5 days of chart info on either. Further, Yahoo Finance did not have any composition information either.
The reader left two links to Dow Jones pages about the index here and here. The second one is a PDF that would not open in Mozilla Firefox and took a very long time to load on Internet Explorer.
The PDF had no specific information about what comprised the index and the first link was a home page of sorts with another link to Index Information but the page never populated with any information.
The way I look at this, in order to benchmark to an index you need to know the sector weights, in the case of the reader's suggested index the country weights, the cap weighting, dividend yield and so. The idea of benchmarking is to start with the composition of the index and then make decisions to under weight, equal weight or over weight on every aspect of that index. You also need to be able to routinely revisit the index for changes.
It has been my experience that indices like the one being asked about in this question are difficult to get information on.
A truly global index might include some countries that we cannot invest in. As the discussion moves along the idea of benchmarking the DJ Wilshire Global Total Market Index seems to get more complicated.
This issue has come up before, I use the S&P 500 which is what most managers use. The S&P 500 has plenty of flaws and I have not tried to argue otherwise. The S&P is easy to access and follow both for clients and managers and, homeward bias notwithstanding, seems like a logical starting point.
I have about 35% allocated to foreign and have mentioned quite a few times expecting to increase that by the end of the decade so it would be a fair argument that I am not really benchmarking SPX and maybe that's right.
The article referenced in the original comment, but no link was left, is not very helpful unless somewhere there is specific country weights, sector weights and so on that are updated very regularly that we can access the information. If anyone knows where this is please leave a link or better yet the actual info along with the link.
Wikinvest Wire
18 comments:
It appears with all those missing links you should be an archeologist.
I could find no reference to a Global Total Market Index at the Wilshire Associates site (http://www.wilshire.com/Indexes/) but did find a reference to it at the DJ Index site (http://www.djindexes.com/mdsidx/); this part of the DJ site (http://tinyurl.com/387fbc) discusses global index methodology but I could not find specific composition information.
Frankly it probably makes as much sense to measure performance WRT the market in which you live as anything else and it does have the virtue of simplicity (it's relatively easy to calculate and understand).
I use the Wilshire5000 for certain calculations (e.g., portfolio beta) but think the larger problem with market indexes as benchmarks is comparability or commensurability; e.g., if I see a notation that a portfolio beat the S&P500 or "the world" or whatever this quarter my very first reaction is something like, "that's nice and (a) how did it do in risk adjusted terms and (b) did it move the investor closer to their goals (which may have little to do with the performance of an index)?"
(a) The first part can be solved by a statistic such as M-Squared (Modigliani&Modigliani) that adjusts performance according to risk level (in effect recalculating performance as if all assets or portfolios had the same risk) so an apples-to-apples comparison becomes possible.
(b) The second part is pretty individualistic natch but I've argued in the past that year-over-year gains in real wealth (adjusted for inflation) is probably more important to more individual investors than most things.
Neither of the above are particularly easy to implement and/or measure more's the pity.
Use of index funds is a humble approach - you expect to do no better or worse than the average investor. There's something to be said for that, especially for those who don't enjoy picking stocks and reading 10K's.
My idea was that as we become a more global market, should we consider a more global index for benchmarking.
The following was the orig url:
http://www.djindexes.com/wilshire/global/docs/gtmi-rulebook.pdf
The following is a tiny url:
http://tinyurl.com/3ytjs8
It is a 28 page pdf decribing the index.
Some excerts:
The Dow Jones Wilshire Global Total Market Index family includes country-level indexes for each of the 59 entities
listed in Table 1.
Stocks in the Dow Jones Wilshire Global Total Market Indexes are categorized into 10 Industries, 18 Supersectors,
39 Sectors and 104 Subsectors as defined by the Industry Classification Benchmark2 (ICB) (See Table 5).
Granted the replication of the index may not be simple but the idea I think has some merit.
Thanks
Both urls worked for me.
Anyone ever look at the total market esque mutual funds? As an example:RELEX. Kind of one stop shop, better than I would have thought. This one is from the same people that give us the russel indices. While underlying index funds are not used, lots of different asset classes and different sources of alpha... the longterm results look like they capture the middle ground when I chart it on a perf chart at stockcharts.com with stuff often referenced in a lazy port.
http://stockcharts.com/
charts/performance/perf.html?VGTSX,
VBINX,VTI,Vasgx,RELEX,
EEM,AGG,EFA,$RUA,$SPX
Actually, I'm also impressed at how well VTI does and how much intl exposure has counted in the past few years. Missing are dividends, I suppose. Always wonder how misleading price per se is when charting.
re global bench mark. If I'm a client and there was a single global index etf I could use to invest, that would be my comparison as a consumer. I would expect the mgr to beat this benchmark in the equity portion and per financial goals/needs/tolerance do something to reduce drawdown particularly since the entire account would be lagging...all after fees. The hard part is picking a time period. It would have to be at least a business cycle of 5-7years. I previously posted about the russell mutual fund. In doing some research with a russell rep, I got the strong impression that global indices are in the works. Won't be long that all of our asset classes, foreign and domestic are going to have converging correlations. Differences, but less. Ergo, volatility harder to evade. But, our central banks will come up with another game/product/risk to assist.
a benchmark of foreign and domestic definitely has merit but is not that that easy, information wise. The do it yourselfer, it could be argued, might be better off with a simple domestic benchmark and buying some foreign stocks.
MSCI World is a standard global benchmark used by institutional investors.
While there is no MSCI World ETF, there is an MSCI All countries ex-US ETF, CWI.
Given that the US is roughly 40% of the market cap of MCI World, you could do worse than setting yourself an investable benchmark of 60% CWI/40% SPY.
Bear in mind that CWI is a new ETF, so there is insufficient data on tracking error to be sure that it is great proxy for the underlying index.
Anon – 10:44 said, “always wonder how misleading price per se is when charting.”
The answer is… quite a lot! When looking at a chart of a mutual fund, closed or open ended, almost all charts on the web do not, and can not include dividends and distributions from these funds. This makes a huge difference to the look and lay of the chart.
Check out the specially designed mutual fund charts at Fasttrack,
http://www.fasttrack.net/charting.asp
These are the only charts on the web that adjust for fund dividends and distributions. I've never taken this service, it costs too much, but you can pop one fund in at a time for free.
Roger, roger...or other wise ones. Offer me, please, a reality test on my 6 ticker lazy diversified port.
RELEX,DBC,BTTRX,FNMIX or TGBAX,$MSWORLD(cwi) and a high yield cef(fam?).
All go up, but not in synch, and there should be decent income. (Yeah..despite fees I've gotten hooked on RELEX as a core holding.)
Both links worked for me too with Firefox. Quick and easy to download. Maybe he's using an outdated version of Firefox or Acrobat. Or he's behind a firewall. I agree with the person who said we should expand indexes with globalization, to unite multinationals and international stocks.
I use the MSCI All Country Gross Index as my benchmark. My returns are more strongly correlated with it than the S&P500 Total Return Index. It's easier to outperform the SPX though :) I get the MSCI data from their website:
http://www.msci.com/eqpages/body_AC.S.8.html
and the SPX total return here:
http://www2.standardandpoors.com/spf/xls/index/MONTHLY.xls
Some reason the end of URL was cut:
http://www2.standardandpoors.com/spf/xls/index/
MONTHLY.xls
Hate to show my ignorance but what is "price per se"? Does Morningstar's total return graph show this and Yahoo's down load of history showing adjusted price show this?
Thx
Anon - 7:55, “per se” I believe was meant to mean “in and of itself.” I took it to mean price by itself without dividends, splits or (fund) distributions. Stock charts without distributions factored in are a minor problem. Fund charts without distributions and dividends are a major deception.
On Yahoo Finance the “Download To Spreadsheet” from the “Historical Prices” page produces an excel data base with and without adjustments for splits and dividends. Apparently, their fund data does not have fund distributions, a major omission.
As for Morningstar, any “total return” graphed mutual fund should have distributions factored in (I would guess) this is Morningstar, after all. The way to tell, look at the right of the graph for the correct share price, to the left, prices will be wrong after a distribution. Typically, charts with distributions, splits and dividends will be of the percent change type, no prices anywhere.
Woops, that should have been…
Stock charts without DIVIDENDS factored in are a minor problem.
Double woops, I’ve just checked one of my mutual funds, Mutual Discover class Z, and compared my statement with Yahoo’s downloadable database. Although Yahoo says “dividends” in fact the numbers are for dividends and distributions, combined.
My apologies to Yahoo, a very nice, and free, source for raw data.
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