Archive | Indexes

The Ethical Couch Potato

Recently a reader wrote to me with an intriguing question: “I’m very interested in the Couch Potato strategy, but I have an added hitch: I’d also like to engage in socially responsible investing. I know there’s the iShares Jantzi Social Index Fund (XEN) for Canadian equities, but I’m not sure if there are other Canadian indexes out there, or what is available in terms of US, international, and emerging markets.”

For those who aren’t familiar with this idea, here’s a definition from the Social Investment Organization, a Canadian non-profit: “Socially responsible investment (SRI) is the inclusion of social, environmental and governance considerations into the management and selection of investments.” Companies commonly excluded from SRI indexes are those in the business of tobacco, weapons, and those with poor environmental performance, human rights violations, or poor employee relations.

Turns out that only one other index fund tracks the Jantzi Social Index, which is the most common SRI benchmark in Canada. The Meritas Jantzi Social Index Fund is one of seven socially responsible mutual funds run by a Winnipeg firm with close ties to the Mennonite community. It’s the only index fund in their lineup and it has a management expense ratio of 1.94% and a hefty front-end load or deferred sales charge.

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The S&P 500 Effect

On Tuesday, February 16, Berkshire Hathaway will become part of the S&P 500, the most widely followed stock index in the world.

While the Dow Jones Industrial Average is more famous, the S&P 500 is the benchmark for more invested dollars than any other index. The iShares S&P 500 Index Fund (IVV) and the SPDR S&P 500 ETF (SPY) together hold about $85 billion in assets, while the Vanguard 500 Index Fund holds $93 billion, making it one of the largest mutual funds on the planet. Here in Canada, the iShares Canadian S&P 500 Index Fund (XSP) ranks number three among US equity funds with more than $1.27 billion under management.

It will be interesting to see what happens to the market price of these ETFs and index funds on Friday, the last trading day before Warren Buffett’s company officially becomes part of the privileged 500. Some market watchers wonder whether Berkshire’s stock price will spike: indeed, in the two weeks since Standard & Poor’s announced the company’s inclusion, the B-class shares have already shot up more than 8%.

Being added or dropped from the S&P 500 can have a huge effect on a company’s share price.

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