Brave New World
By Jim Wiandt

Jim Wiandt
Editor

If you'd asked me a few years ago if we'd be running articles on hedge fund replication, I would have looked at you like you had three heads and a couple of tentacles. But a broadening definition of "asset class" and the opening up of institutional strategies by ETFs have completely altered the index investing landscape.

And none too soon.

While very legitimate criticisms can be leveled at the index industry—much of the "index enhancement" efforts, for instance, are really about "margin enhancement"— you've got to applaud developments. Legitimate asset classes like commodities, currencies and commercial real estate that have traditionally been difficult for retail investors to access at anything less than astronomical cost are now widely available with reasonable expenses.

Now, ETF developers say they're going to chip into the world of 2 and 20 … hedge funds. Giving two percent of assets and 20 percent of investment profits to a hedge fund manager has always seemed ludicrous to me; now that there are 10,000 hedge funds out there, it strikes me as pure farce.

In this issue, Professor Robert Whitelaw and Sujeet Banerjee lay out the thinking behind the first working man's entry into the hedge fund world. We also have Margaret Gilbert explaining what hedge funds are really all about … which is risk control, NOT returns. Honest.

Next up is an interview with Henry Fernandez of MSCI, followed by an extremely lively discussion of Intellectual Property (IP) disputes in the index industry.

Rounding out the issue is a review of index research in academia by Professor Haslem, as well as a very insightful look at the reorganization of a pension fund by staff writer Marsha Zapson. We also have a nice study of ETF tracking error by Paul Mazzilli, and columns from both David Blitzer and the Curmudgeon.

Finally, on page 49, we're pleased to share the top five entries we received in our John Bogle haiku contest, ranked in order by our panel of judges. These winners received autographed copies of Mr. Bogle's latest book.

As an online bonus, check out all of the best entries here.

Enjoy the summer...



Jim Wiandt
Editor