Whither The Wilshire?
When it comes to equity market indexes, the Big Three are the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite. The Russell 2000 is another closely watched benchmark index. But why doesn't the Wilshire 5000 get more public attention? After all, this market cap-weighted index is the broadest available for the U.S. equity market, with far more names than the Dow, which represents a measly 30 companies, but is considered the public face of the U.S. markets.

"We'd love to see wider exposure," says David Hall, senior managing director at Wilshire Associates Inc., the Santa Monica, Calif.-based investment advisory and services company that created the index nearly 40 years ago. "We're a humble team of financial engineers here, and I don't think we could ever be accused of being a slick marketing machine."

The Wilshire 5000 got good play after Wilshire and Dow Jones & Co. formed a partnership in 2004. The latter handled the index's calculation and maintenance, and it was rebranded the Dow Jones Wilshire 5000. But Wilshire regained control of the index when that partnership ended in 2009 over what Hall calls a "philosophical divergence."

"Dow Jones was clearly interested in building the kinds of indexes that in our view aren't really benchmarks," Hall says, adding that the difference between an index and benchmark is that the former can sometimes be too narrow and serve no purpose other than to get people's attention.

Hall says the Wilshire 5000 is a very efficient benchmark used by a variety of institutions, including the Federal Reserve Board. "Whether or not we were in the index business for commercial purposes we'd have an index because it's at the heart of our consulting business with some of the largest institutional investors in the world," Hall says.

Beware Of Derivatives In Mutual Funds
The use of derivatives by banks was a hotly contested issue that Congress debated to the bitter end before passing the financial services reform package this summer. The use of derivatives by mutual funds may not be nearly as devisive an issue, yet in August the Securities and Exchange Commission sent a letter to the Investment Company Institute saying it's conducting a review to evaluate the use of derivatives by mutual funds, exchange-traded funds and other investment companies.

Specifically, the SEC is looking at whether existing prospectus disclosures adequately address the particular risks created by derivatives. It noted that some funds provide generic disclosures that are of limited use to investors, and that these disclosures can range from abbreviated comments to lengthy and technical explanations that don't clearly explain their relevance to the fund's operations.

The SEC makes the case that funds employing derivatives should supply disclosures using plain English that describe the amount of derivatives used and the purpose they're used for. The agency also says the risk disclosure in the prospectus should describe the fund's complete risk profile as a whole, including anticipated derivatives use.

A spokesperson for ICI, a trade group for mutual funds, ETFs and other investment companies, said the organization is reviewing the SEC's letter and will work with its members so they understand and comply with their disclosure obligations.

Todd Rosenbluth, mutual fund analyst at Standard & Poor's Equity Research, says some mutual funds actively use derivatives such as futures, call options and the like, and that many funds with overseas investments employ currency hedging for downside protection. "It's more prevalent than people think," he says, noting that Pimco is an example of a fund family that actively--and successfully--uses futures as part of its approach.

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