A GLORIOUS DAY FOR INDEX-TRACKERS?

On Friday, August 3, the US Labor Department announced that job growth in July had increased by 163,000. The news was much better than expected; the stock market rallied, reflecting the hope that an improved economy will lead to strong corporate earnings growth. The S&P500 index went up by 1.90%, while the Nasdaq Composite closed +2.0% higher. Note that the ETFs that track them had an almost identical performance: the SPY (+1.98%) and the QQQ (+1.89%), which replicates the Nasdaq-100 index [see].

This was surely a glorious day for fund management companies who specialize in passive management. One can be certain that many active managers underperformed. Meanwhile, the Vanguard managers did not have to worry about the Fed and the ECB meetings, nor about the employment report. Some Financial Times articles provide a glimpse of the difficulties faced by some of the top active managers:

Hedge fund specialist Och Ziff Capital announced yesterday that all of its four main hedge funds still lagged behind the 7 per cent return of the MSCI World stock market index for the year at the end of june. The avergage hedge fund has gained less than 2 per cent by the end of june, according to Hedge Fund Research, and on Wedenesday one of the most successful managers, Louis Bacon, announced that Moore Capital would return $2bn to clients in the hope of improving returns on their remaining capital. Meanwhile, Fortress Investment Group was forced to close its commodities fund during the quarter after heavy losses.

(*) Dan McCrum: "Volatile markets take toll on alternative asset managers", Financial Times, August 3.
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