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That is not generally the case. Most index funds are 'market cap weighted' which means that hold funds in ratio to their market capitalization. If stock A doubl
by jacobkg 9y ago
That is not generally the case. Most index funds are 'market cap weighted' which means that hold funds in ratio to their market capitalization. If stock A doubles in price, it's market cap also doubles and the index fund will continue to hold the same number of shares.
- Retric 9y agoReread what I posted, that's what's happening. If they own 1M$ of A and 1M$ of B, but B is worth more than A then they sell some of A to buy some of B.
- stouset 9y agoYou're leaving out a description of how they manage to own an imbalanced quantity of A and B in the first place. Keep in mind that this doesn't (at least not naïvely) happen when one of the two increases or decreases in value relative to the other.
- Retric 9y agoStock buyback's are one example, but companies can also issue/aka create new stock from thin air and sell it. Though clearly less extreme than I was describing, the forces are similar.