4 ms·
Why can't the index fund just sell Pepsi and keep Coke? Just because one of the companies does bad means you have to divest from the entire industry?
by blueside 11y ago
Why can't the index fund just sell Pepsi and keep Coke? Just because one of the companies does bad means you have to divest from the entire industry?
- theseatoms 11y agoIndex funds are typically meant to track the broad market, of which both Coke and Pepsi are parts.
- hsitz 11y agoBecause both companies are on the index that the index fund matches, and the whole premise behind index funds is that they're set up to require their managers to purchase stock of all companies in the index (managers not allowed to pick and choose).
- saryant 11y agoBecause then it's not an index fund, it's an actively managed fund. The appeal of an index fund is that it mechanically tracks an index so costs are very very low and investors can track the market as closely as possible.
- im3w1l 11y agoThe idea of an index fund is that you neither buy nor sell. Just by sitting on your stock, you get average returns. There are a few exceptions: when someone invests in the fund, the fund has to invest their money, and vice versa when someone withdraws money from the fund. When a company enters/leaves the index the fund is tracking, the fund has to buy/sell their shares.