Mutual Funds for the Utterly Confused

John Ray, an English born naturalist is credited with some of the most quoted quotes: Snippets such as “misery loves company” and “beauty is power; a smile is its sword” to “hell is paved with good intentions” have entered into our lexicon often without the credit given to the man who coined them.

As we continue our discussion about index funds, we ask, what happens when an index mutual fund misses investor expectations? The unfortunate lesson of this is that all index funds are not created (or for that matter, act) the same.

Reviewing that index funds operate as an investment that mimics a published index and because most of the thinking that would otherwise be involved in an actively managed fund is not there, the costs should be far lower than their active counterparts. This frugality (which was the cause for the Ray quote to appear: “Industry is fortune’s right hand, and frugality its left”) comes with the territory. Index funds need only make a trade when the index it tracks changes.

But it is that tracking error that creates problems.

John Ray was born on November 29, 1627 to a father who was a blacksmith and his mother was known as a healer and herbalist. It has been assumed that it was her influence on the young man that fostered his love of nature. He eventually entered Cambridge University in 1644, where he became expert in languages, mathematics, and natural science. His love of plants specifically and nature in general led him to become a Fellow in 1649, a Lecturer in 1651, and a junior Dean in 1658.

It was his ability at observation that grew his philosophical arguments and nurtured his theological tendencies. At the time. most religions believed that nature was separate from worship. Ray felt otherwise. But it was his ability to write about what he saw, not only in nature but about the people he taught and dealt with that gave him his legacy.