Market Funds and Trust-Investment Law

Abstract

There is growing interest within the investment community in what are known as “index” or “market” funds. These are mutual or other investment funds that have abandoned the traditional attempt to “beat the market” by picking and choosing among securities-buying stocks or bonds that they believe to be undervalued and selling those they believe to be overvalued. Instead, they create and hold essentially unchanged a portfolio of securities that is designed to approximate some index of market performance such as the Standard & Poor's 500. The S&P 500 is a hypothetical portfolio consisting of 500 major nonfinancial companies on the New York Stock Exchange weighted by the market value of each company's total outstanding shares. Batterymarch Financial Management Corporation in its Market Portfolio holds a 250-stock selection from the S&P 500 designed to track the performance of the S&P 500 very closely. Two major banks, American National Bank and Trust Company of Chicago and Wells Fargo Bank, have created market funds in their trust departments. And several large pension funds, including those of several Bell Telephone Companies and of Exxon, have recently placed a portion of their assets in such funds.

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