Modern Indexing for the Affluent Investor

Index investing has seen substantial growth over the last decade. Low minimum investment requirements and low expense ratios have given investors the ability to gain broad exposure to the stock market.

However, investing in a simple market-cap weighted index fund that tracks the S&P would be resigning yourself to hidden costs and inefficiencies that could negatively impact long-term performance. These drawbacks would be further compounded when invested in actively managed mutual funds.

Here are the 4 key areas where traditional index funds fall short:

Earnings Quality

Most index funds today place no value on the quality of the companies in the index. Instead, they simply spread the money around to every company in the benchmark, meaning you will never outperform.

Unlike market cap index funds, we apply an earnings quality screen to our Earnings-Focused indexes which helps support long-term growth and helps identify when companies need to be replaced within investor portfolios.

Furthermore, a focus on company strength enhances the likelihood of incurring smaller losses during turbulent markets and bouncing back more quickly in the aftermath of a downturn.

Investor Ownership

When you buy into a mutual fund you own shares of the fund, not the stocks themselves. While this might seem inconsequential, it means that you cannot control the shares. Lacking control means poor tax efficiency and an inability to exclude companies that do not align with your conscience.

Unlike mutual funds indexes where investors are pooled with other investors with different investment objectives, the LT&Co. private portfolio index holdings are all purchased in each investors account so they have full control and transparency of each holding, efficient tax0-loss harvesting, and the ability to gift positions efficiently.

Cost

Mutual fund expense ratios on index funds are low, however this metric does not include the trading cost the fund incurs and passes along to the investors. Additionally, by being in a pooled fund with thousands of other people, you are exposed to herding impact, which occurs when mutual fund managers are forced to sell positions to fund investor withdrawals. 

Unlike index funds, where trading and other costs are controlled by the index company, the Linden Thomas private indexes have no trading cost and are not impacted by small investor behavior commonly known as herding impact.

Results!

The Linden Thomas & Co. Earning Focused Indexes closed out 2019 with a bang. Returns for 5 of our most popular indexes are in the table below, compared to the S&P 500. With performance like this, it is easy to forget that our quality screens are meant to shine during and after times of poor market performance. 

Index Name Ticker 2019
Linden Thomas US Large/Mid-Cap Growth 100 Index LT100LG 37.45%
Linden Thomas US Large/Mid-Cap Growth 50 Index LT50LG 33.54%
Linden Thomas US Mid-Cap Quality Growth 50 Index LT50MG 36.29%
Linden Thomas US Large-Cap Quality Growth 50 Index LTLQGQ 33.89%
Linden Thomas Quality Dividends US Large-Cap LTQDLX 33.89%
S&P 500 Index .SPX 31.49%

 

We love the opportunity to share our investment discipline. Call us today for a free portfolio review at 704-554-8150.