10Ralph: That's true. What's more, LSP is made to compound gains. Every time it makes any kind of profit, it gets banked and is ready to be redeployed. So at the next reinvestment, you have a bigger pie that you're buying into. This is the reason that an LSP portfolio outperforms during both bull markets and bear markets.Richard: Keep in mind that this is more than buy-and-hold. And it's not over-trading either. It's a truly objective means of managing any basket of stocks using nothing but mathematical formulae.Ralph: One more thing it's not and that's dollar cost averaging. It's "keeping your powder dry," to use the old expression. It's the incremental readjustment of the positions in order to increase your capital. Richard: The people who are most likely to gain from the strategy are conservative and passive investors and institutions that are looking for capital preservation and consistent return to new high equity. That's what LSP is all about. It's really a one-of-a-kind, long-term strategy for long-term investors.Ralph: I have to say that I agree with you on that too. (laughs) LSP is really distinctive in the way that it keeps a reserve that allows investors to increase the returns on any portfolio of stocks, globally. And who wouldn't want to add basis points to their return simply by using LSP to manage the quantity? It's a lot of fun to tell financial professionals that they should rethink everything, and here's the proof!For more information on the Dow Jones LSP Position Sizing IndexesSM, visit: >> www.djindexes.com/positionsizingRalph Vince and Richard Wilkie of LSP Partners, LLC, discuss risk-based strategy behind the Dow Jones LSP Position Sizing IndexesSM.Visit www.djindexes.com/video/insights/PositionSizing to view the video."The people who are most likely to gain from the strategy are conservative and passive investors and institutions that are looking for capital preservation and consistent return to new high equity. That's what LSP is all about."
11In DevelopmentTrends in Dividend IndexingAfter the tumultuous markets of the past few years, says Jamie Farmer, investors appear to have what he calls "different expectations" when it comes to tracking stocks. The growing appeal of dividend indexes, he says, is evidence of that."Once our clients began to understand that the heady days of the last couple of decades were over, they wanted alternatives," explains Jamie, who is the Executive Director of Global Business Development and Communications for Dow Jones Indexes. "They'd grown tired of volatility, and seemed to appreciate the notion of a steady stream of dividends. I think there was a collective, 'Oh yeah, this is why people used to like dividend-payers.'"He says that as dividend indexes are enjoying re-discovered popularity, Dow Jones Indexes is creating many new products for clients who want to track them. This is partly in answer to client demand. But it is also part of an ongoing process for the firm, which, he states, is dedicated to creating sophisticated and topical measurement tools.The fact is, he says, that Dow Jones Indexes has long been a pioneer in the dividend indexing space. In October 2003, the Dow Jones U.S. Select Dividend IndexSM was launched. It marked the first time that a major index provider had created an index that followed stocks based on their dividend payments. The index set strict rules for inclusion, such as having a long history of paying out as well as minimum trading volume."There's been an absolute sea-change with respect to returns," Jamie continues. "During previous bull markets, people sort of demanded to see at least 10%, 15% annual returns. Maybe more. "Since the meltdown, however, there's a new realism for a new reality. Our clients just don't think it's possible to expect those numbers on a consistent basis. There seems to be a more conservative outlook in markets, and dividend indexes play really well for those wanting 'slow and steady' performance."New indexes, new criteriaToday, Jamie points out, the Dow Jones Select Dividend IndexSM family covers most of the world's major markets. It includes national indexes for the United States and Canada, as well as for eight European and three Asia/Pacific countries. It also includes global and regional indexes such as Eurozone and emerging-market measures. In addition, there is the Dow Jones Islamic Market Global Select Dividend IndexSM for those who want to track Shari'ah-compliant stocks. "We're always looking to expand our coverage, but it's also our client requests that have helped to fuel our innovation in the dividend space. They're looking to expand beyond plain-vanilla dividend indexes. They want more-sophisticated and nuanced approaches. For example, in October 2011, Dow Jones Indexes launched the Dow Jones U.S. Dividend 100 IndexSM, which differs from many dividend-focused indexes in its method for choosing components. "What makes this index different is that it doesn't use dividend yield as the sole criterion for stock selection. It digs a little deeper. It's designed to find high-dividend-paying companies with really strong business essentials."He mentions that component stocks in the Dow Jones U.S. Dividend 100 IndexSM must have something called "fundamental strength" relative to their peers, based on financial ratios. It cannot simply be the case that a company pays dividends. It must also have a track record of strong earnings growth that justifies the dividend payments, and it must pass both size and liquidity screens.Jamie FarmerExecutive Director of Global Business Development and Communications, Dow Jones Indexes