Observation - to watch something or someone carefully; to study and record information; to obey a law or rule, or celebrate a holiday or religious event in a traditional way.

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"...the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index. That means just 5% of actively managed funds really are driven by the active manager's judgment.

This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs.

That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor's, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Group which owns 90% of Dow Jones Indexes, and Barclay's, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world's money.

...when you discuss power in the world markets, the answer isn't what you think it is."    - Brendan Coffey

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