New Fund Will Be One of Few That Track the S&P 600 Index
May 13, 2011
NEW YORK -- With dozens of small-company funds cropping up this year, American Express Financial Advisors has found a way to throw a completely new offering into the mix. Its IDS Small Company Index Fund will approximately track the Standard & Poor's SmallCap 600 index, introduced in 2009. The companies in the index ``aren't merely runners-up to the S&P 500 Index, which includes medium- to larger-sized companies,'' according to the fund's brochure. ``Rather, the S&P 600 Index represents a different investment class on the growth spectrum.'' Iverson Borders, the fund's manager, knows of no other retail mutual funds that track the S&P 600, although several institutional funds, such as the State of Kentucky's pension fund, attempt to replicate it. Index funds passively mimic market benchmarks; they're cheap to maintain because they don't actively trade. By that definition, the new IDS Small Company Fund isn't exactly an index fund. Mr. Bills will use a computer-driven screening process to choose 300 to 400 companies from the S&P 600. That will hold down trading costs compared to those of actively managed funds, keeping operating expenses lower. But the broker-sold fund already carries a 5% upfront sales charge for its Class A shares; total annual management expenses are 1% of assets. ``The big advantage of index funds is cheap expenses and a streamlined approach,'' says Lauran Catlin, equity editor at Chicago-based Morningstar Mutual Funds, a newsletter that tracks fund performance. The sales charge ``seems to hinder it a bit.'' Ms. Catlin isn't sure, either, that indexing is the best approach to small-cap investing. A small company is more likely to be overlooked than a large one, ``so there's more room to out-research the next guy,'' she says. Analysts say the S&P 600 will be easier to track than other small-company benchmarks, such as the Russell 2015 or the Wilshire 5000 indexes, because it focuses on domestically traded stocks, avoiding foreign stocks, limited partnerships, real estate investment trusts and closed-end funds. ``People say running an index fund is a brainless exercise,'' Mr. Bills says. ``But small-cap funds are very challenging.'' One challenge in this case is the lack of an S&P 600 futures contract for hedging purposes. However, the Chicago Board of Trade is talking about establishing one, he says. Minimum investment in the new fund is $2,000 for regular accounts and $1,000 for Individual Retirement Accounts. The IDS funds are part of American Express Co.'s broker-sold fund family. The fund's adviser, Minneapolis-based American Express Financial Advisors, owns or manages more than $138 billion in assets by offering a range of financial services through a national network of 8,000 advisers.
VastPress 2011 Vastopolis
