| Index
Spotlight: Dow Jones Style Index ETFs
By John Spence
June 11, 2002 |
|
Currently there are exchange-traded funds available that track
style indexes from Russell, Standard & Poor's/Barra, and Dow
Jones. At first glance these indexes seem similar, but as we've
seen before subtle differences in index methodology can lead to
significant differences in performance. With this point in mind,
let's zero in on State Street Global Advisors' streetTRACKS funds
hitched to the Dow Jones style indexes:
- streetTRACKS Dow Jones U.S. Large-cap Growth (ELG)
- streetTRACKS Dow Jones US Large-cap Value (ELV)
- streetTRACKS Dow Jones US Small-cap Growth (DSG)
- streetTRACKS Dow Jones US Small-cap Value (DSV)
State Street doesn't offer Dow Jones mid-cap style funds, but
let's see how the large- and small-cap offerings differ from their
Russell and S&P/Barra competitors. Each index provider uses
its own unique set of rules to define growth and value.
Measuring style
Dow Jones uses six factors when sorting companies by style: projected
price-to-earnings (p/e), projected earnings growth, trailing p/e,
trailing earnings growth, price-to-book (p/b), and dividend yield.
Check out our glossary
for descriptions of these terms. Notice Dow Jones uses two forward-looking
measures and four historical factors.
S&P/Barra uses one measure to classify a stock's style: p/b.
Russell uses p/b as well as a projected measure: IBES forecasted
earnings.
Here nor there
Index providers utilize various measures to determine style,
but the differences don't end there. How those criteria are used
to break up the equity universe is also important.
S&/Barra uses a quick and dirty approach. All stocks are
ranked by p/b and the top half are considered growth and the bottom
half are value.
Russell and Dow Jones have a third category called "blend"
or "neutral." In a nutshell, Russell takes the approach
that some stocks are middle of the road in terms of style and
thus can be in both the growth and value indexes. Russell uses
a complex non-linear weighting - more on this here.
Dow Jones does something different with its "neutral"
category - these stocks are considered neither growth nor value
and are therefore not included in the growth or value indexes.
Rebalancing and turnover
Russell rebalances its indexes once a year, which tends to reduce
total turnover but can lead to stale categorizations as the year
wears on. S&P/Barra conducts semiannual rebalancings of its
style indexes to get back to the even 50/50 percent style split
by market capitalization.
Dow Jones also rebalances semiannually, but takes unique steps
to decrease turnover. For example, within the style indexes are
"weak" and "strong" stocks for growth and
value. Dow Jones uses buffer rules so that stocks don't jump around
between indexes due to brief but intense market changes.
The fundamentals
Now that we've glossed over the basic differences in methodology,
let's take look at the nuts and bolts of the streetTRACKS Dow
Jones style ETFs and their competitors.
| ETF Name |
Ticker |
Expense Ratio |
Median Mkt Cap $MM |
P/B Ratio |
P/E Ratio |
Turnover ratio |
| iShares Russell 1000 Growth Index |
|
0.20% |
71,185 |
6.6 |
33.6 |
11% |
| iShares Russell 1000 Value Index |
|
0.20% |
29,393 |
3.6 |
25.8 |
9% |
| iShares S&P 500/BARRA Growth Index |
|
0.18% |
93,432 |
7.7 |
33.0 |
31% |
| iShares S&P 500/BARRA Value Index |
|
0.18% |
31,128 |
2.6 |
26.2 |
9% |
| streetTRACKS DJ US Large Cap Growth |
|
0.22% |
135,355 |
6.0 |
38.2 |
16% |
| streetTRACKS DJ US Large Cap Value |
|
0.21% |
64,195 |
4.6 |
25.2 |
12% |
| streetTRACKS DJ US Small Cap Growth |
|
0.30% |
1,053 |
3.9 |
34.8 |
34% |
| streetTRACKS DJ US Small Cap Value |
|
0.28% |
1,497 |
2.2 |
23.5 |
47% |
| iShares Russell 2000 Growth Index |
|
0.25% |
741 |
4.1 |
30.7 |
9% |
| iShares Russell 2000 Value Index |
|
0.25% |
866 |
2.2 |
24.6 |
9% |
| iShares S&P SmallCap 600/BARRA Growth |
|
0.25% |
1,059 |
4.5 |
30.4 |
77% |
| iShares S&P SmallCap 600/BARRA Value |
|
0.25% |
712 |
1.8 |
24.3 |
17% |
Source: Morningstar,
data as of 5/31/2002, click on a ticker for returns
Further reading
Remember, the "best" index is the one that fits snugly
in an individual investor's portfolio with an eye on the whole
picture. Therefore, it's important to know how indexes work before
investing, and we've only just scratched the surface here. Visit
the index providers' sites for more information on their style
indexes:
