The grim, grey editorial pages of the Wall Street Journal have become a field of glory, with flashing knives, slings and arrows, as famous academics battle to defend the besieged Efficient Market Hypothesis and the purity of Index Funds.

The Battle of the Academics
The Battle of the Academics

In an editorial published on June 27, 2020, Burton G. Malkiel joined with John C. Bogle of the Vanguard Group, to fight for “capitalization-weighted indexing” against the insurgency of Jeremy Siegel, Eugene Fama, Robert Arnott, and Kenneth French, proponents of a heretical notion of “fundamental-weighted indexing”.

Professor Siegel Throws Down A Glove

Professor Jeremy Siegel had opened the fray by an earlier editorial in the Wall Street Journal of June 14, 2020, proposing that index funds should be weighted on the basis of dividends rather than market capitalization.

Professor Malkiel replied with haughty disdain, calling for caution before accepting the Johnny-come-lately “new paradigm” of “fundamental-weighted indexing”, since this would imply that the “old paradigm — reflected in more than $3 trillion of capitalization-weighted index investment funds — is in error”

Joining Professor Malkiel in the defense of capitalization-weighted indexing was none other than John C. Bogle, who, as patriarch of the Vanguard Group that manages $340 billion in index equity assets, has a very, very large dog in the fight.

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Issues of equity-based exchange traded funds totaled $121.7 billion in Q4 2005 (annualized basis), according to Federal Reserve Flow of Funds table F123.

This level of flows into ETFs set a record.

According to the Investment Company Institute, the number of ETFs increased from 151 in December 2004 to 201 in December 2005.

In December 2005, domestic equity index funds made up 73% of ETFs, international equity index funds were 24% of the total, and 3% were bond index funds.


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