Editor’s Letter

Abstract

DaviD rowe Reprints Manager and Advertising Director To open the Fall issue, Huffman and Song propose a novel index reconstitution methodology that significantly reduces the trading volume and trading costs for funds tracking the index, without hurting the style purity of the index. Their reconstitution methodology rebalances a small piece of the index every day, allowing index funds to use their daily cash f lows to rebalance. Bender, Pozen, and Tank analyze US listed IPOs, between 2010 and 2018, that were added to the Russell 1000 and the Russell 2000 Indexes and conclude that index funds could have generated excess returns by buying IPOs prior to their inclusion in the indexes. They develop a risk–return framework that could guide index portfolio managers in timing and sizing their IPO trades prior to their inclusion in indexes. Next, Meziani examines whether frontier markets are suitable to the average investor in terms of the size of their markets, liquidity, and risk-adjusted performance. He concludes that, for now, only their undeniable diversification benefits, an outcome that modern portfolio theory has taught us to highly value, tilt the odds in their favor. Blitz evaluates factor performance for 2010–2019 and finds that there appears to be a clear dichotomy in recent factor performance. While generally accepted factors struggled, various factors that are considered to be inferior or redundant remained effective. Kanuri looks at the risk and return characteristics of environmental, social and governance (ESG) exchange-traded funds (ETFs) since their inception. He finds that performance of equaland value-weighted ESG portfolios outperformed the US market in some periods and underperformed in others. However, over the entire period, IWV outperformed ESG portfolios and had higher absoluteand risk-adjusted performance. To complete this issue, Fang and Olteanu-Veerman examine the efficacies of factor strategies by applying well-known equity factors in China A. They demonstrate that the traditional price momentum factor did not work in China A, however, a sentiment factor based on return reversal and analyst information can better capture behavioral patterns of local investors. As always, we welcome your submissions. Please encourage those you know who have written papers or made good presentations on indexing, ETFs, mutual funds, or related subjects to submit them for consideration. We value your comments and suggestions, so please email us at journals@investmentresearch.org.