More Wall Street Lunacy: The “Enhanced” Index Fund

You’ve all heard about The Bermuda Triangle, that place out in the Atlantic where airplanes and cruise ships go missing periodically. But have you become aware of the beasts that stalk those who venture into The Manhattan Triangle. This is where the pinstriped and red-suspendered Scyllas of Wall Street suck billions of unsuspecting Franklins into the Charybdis they call investment products. The Wall Street Institutional Brain (washing) Trust is truly one of the most amazing entities on the planet: intelligent, foresighted, resilient, and creative.

Ah creativity! When combined with arrogance, greed, and manipulative skills of the highest magnitude, anything, absolutely anything, goes… and goes unchallenged!

First there was the development of the Mutual Fund into the medium of choice for transferring millions of innocent retirement dollars into the pockets of investment bankers and venture capitalists. Then there was the conspiracy to conceal the realities of the last six years’ investment experience to preserve the myth of Wall Street brilliance. [No, there has not been a bear, or even a bad, stock market since the new century began. It has just been a rally that the captains of the universe didn’t want you to know about. After all, you can’t sell Mutual Funds to people who know just how bad they really are!]

Still, and out of the other side of the mouth, came the index fund trial balloon. After all, who really needs management? What! Isn’t management the key element of the 650,000 Mutual Funds they’ve been cramming down people’s throats for thirty years? Wasn’t this an outright admission of the failure of all the other funds?

Well now they are promoting the Enhanced Index Fund! What is it enhanced with? Why management, of course! And I guarantee you that they will be able to sell those as well. It just seems that they can’t create a fund that works. Pity.

Why not give plain vanilla stocks and bonds a try like in the old days? When was it determined that Quality, Diversification, and Income Generation were unnecessary? When indeed! Find your way back to value. There are still some honest people who will take you there without any investment products at all.

A Google search produced these notes on enhanced funds from a-zinvestments.com: 

• These funds juice up the S&P 500 index by weeding out laggard stocks while adding faster growing ones. Some even buy options and futures to hedge their positions in the hope of making more money, while protecting themselves if the market turns against them.
• You would think this investing system would work. But in the past 5 years, only 1 out of 5 enhanced index funds beat the S&P 500. These funds have the same drawbacks as any actively managed fund: poor stock selection, poor timing, and poor judgment.
• One size fits all just has to produce bad management

We don’t need push button investing systems. We need investment professionals who have passed Investments 101 and an Investment Community that will encourage them to use their skills for the benefit of investors