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Institutional S&P 500 Index Mutual Funds as Financial Commodities

Fact or Fiction?

John A. Haslem, H. Kent Baker and David M. Smith
The Journal of Investing Summer 2008, 17 (2) 24-34; DOI: https://doi.org/10.3905/joi.2008.707215
John A. Haslem
Professor emeritus of finance in the Robert H. Smith School of Business at the University of Maryland in College Park, MD.
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  • For correspondence: jhaslem@rhsmith.umd.edu
H. Kent Baker
University professor of finance in the Kogod School of Business at The American University in Washington, DC.
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  • For correspondence: kbaker@american.edu
David M. Smith
Associate professor of finance and research associate in the Center for Institutional Investment Management at the University at Albany (SUNY), NY.
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  • For correspondence: ds693@albany.edu
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Abstract

Given their simplicity and presumed commodity-like nature, institutional S&P 500 Index mutual funds should be subject to active price competition, resulting in only nominal size-adjusted differences in expenses. This article finds a wide disparity among fund expense ratios and their corresponding characteristics and performance. Overall, the evidence suggests some price competition among institutional S&P 500 funds, but not to the extent that they may be considered financial commodities. One explanation for the existence of high-priced index funds is that they tend to require significantly lower minimum initial purchases. The data do not support the notion that institutional investors buy high-priced S&P 500 funds to access broader or lower-cost investment services from fund families, and the conclusion is that the market for institutional S&P 500 funds is not completely homogenous.

TOPICS: Security analysis and valuation, performance measurement, technical analysis

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Institutional S&P 500 Index Mutual Funds as Financial Commodities
John A. Haslem, H. Kent Baker, David M. Smith
The Journal of Investing May 2008, 17 (2) 24-34; DOI: 10.3905/joi.2008.707215

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Institutional S&P 500 Index Mutual Funds as Financial Commodities
John A. Haslem, H. Kent Baker, David M. Smith
The Journal of Investing May 2008, 17 (2) 24-34; DOI: 10.3905/joi.2008.707215
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