Tilt Fund

  

Categories: Mutual Funds

Your neighbor has a Mustang. You’re tired of getting blown away during Saturday night drag races on your street. You really want to beat that Mustang.

You start by buying the same Mustang your neighbor has. But then you make additions in order to beat it. You replace the engine with something you bought off a used jet. You add a nitrous booster. And, of course, you paint flames along the doors, if only for intimidation value.

The same premise applies to a tilt fund. It's an investment strategy that starts by mimicking an existing index.

You want to create a tilt fund off the Dow Jones Industrial Average. You'll start by buying all 30 Dow components in the same weightings as they exist in the actual index. You've basically replicated the Dow index...the equivalent of buying the same car as your neighbor.

Now it's time to start tilting. You monkey with the components to get an edge over the actual Dow. You begin adding other stocks. Maybe a tech high-flier you like. Maybe something from a sector you think is underrepresented in the actual index.
In the end, you have something that's mostly a match for the Dow. But (hopefully), if you're good at picking the extras, you have a fund that will outperform the index on which it is based. You'll be able to blow that old Mustang off the line and win the respect of your neighbors.

Related or Semi-related Video

Finance: What is the S&P 500?45 Views

00:00

finance a la shmoop. what is the S&P 500? well the S&P 500 is just an index- that

00:08

is the standard and poors company assembled 500 stocks put them on a

00:13

spreadsheet- this was a spreadsheet in 1957 -and they tracked them. [spreadsheet pictured]

00:17

well the index had something like 37 shares of Procter & Gamble, the 23 shares

00:23

of Ford, 18 shares of IBM and so on. in the 1950s the S&P 500 totaled something

00:29

like 40 maybe 50 bucks on a good day. at the end of each day the elves who worked

00:34

inside of the S&P Factory, they would add up the shares basically ignore any

00:39

dividends and send to the press a total which was published to more or less

00:43

everyone who cared about investing. well not nearly even a century later the 40 [man reads newspaper]

00:47

to $50 reign to the SNP is today knock on the door of 2,500 .so without even

00:53

having dividends reinvested you'd have made 50 times your money with dividends

00:57

reinvested to buy more shares instead of keeping the cash to buy you know

01:02

groceries or electric massage slippers. you'd have made over 70 times your [grocery display case and slippers pictured]

01:07

original investment. welcome to America.

Up Next

Finance: What is the Dow Jones Industrial Average?
2710 Views

What is the Dow Jones Industrial Average? The Dow Jones Industrial Average is usually just called the Dow. It’s an average of 30 of the most well...

Find other enlightening terms in Shmoop Finance Genius Bar(f)