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Aren't most index funds, almost by definition, required to buy their shares? If Vanguard owns a piece of every listed company, they're going to buy Uber at pre
by dockd 7y ago
Aren't most index funds, almost by definition, required to buy their shares? If Vanguard owns a piece of every listed company, they're going to buy Uber at pretty much any price, right?
- mrhappyunhappy 7y agoI wonder about this too. What if I, as an index fund holder do not want the fund to buy up junk like lyft and uber?
- MichaelDickens 7y agoThe purpose of an index fund is to buy the entire market, under the assumption that an active fund will not outperform the market (after costs). If you want to avoid certain companies, you should buy an actively managed fund.
- MrPowers 7y agoThere are different types of index funds. There are market capitalization weighted index funds that fit your description of buying the entire market, but there are also small cap funds, sector funds, value funds, etc. You can avoid certain companies (e.g. FAANG stocks) by buying certain indexes (e.g. a value index).
- acranox 7y agoI think that’s where “socially responsible” investing comes into play. ie https://www.morningstar.com/funds/XNAS/VFTSX/betaquote.html https://www.morningstar.com/funds/XNAS/VFTSX/betaquote.html
- tyrust 7y ago>Vanguard owns a piece of every listed company I doubt this is true, at least not across their primary stock market index funds. For example, VTSAX only holds about 3500 stocks [0]. I don't know how the fund usually treats new, large IPOs, but I highly doubt that they would just blindly buy it at "any price" EDIT: I just checked the holdings of VTSAX [1] and VGT [2], neither holds Lyft. [0] - https://investor.vanguard.com/mutual-funds/profile/portfolio/vtsax https://investor.vanguard.com/mutual-funds/profile/portfolio... [1] - https://investor.vanguard.com/mutual-funds/profile/overview/VTSAX/portfolio-holdings https://investor.vanguard.com/mutual-funds/profile/overview/... [2] - https://investor.vanguard.com/etf/profile/portfolio/VGT/portfolio-holdings https://investor.vanguard.com/etf/profile/portfolio/VGT/port...
- YjSe2GMQ 7y agoIf it falls within fund's target they should just buy it, without thinking. That's the point of low cost ETFs. There's even a known arbitrage opportunity with things like S&P500. When the S&P committee decides to include a new stock (and delist some other stock) you can front-run the purchases by the giants like SPY or VOO, slightly inflating the stock's value just when the ETFs buy it from you.
- SilasX 7y agoThe link for VTSAX says the portfolio data is current as of 02/28/2019, which was before Lyft's IPO (3/29/19).
- tyrust 7y agoGood catch, guess we'll see when they update.
- hoschicz 7y agoThey don't hold Lyft because of their dual-class share structure. Yes, Vanguard will buy at "any price" and will buy more at a higher price -- the funds try to replicate the breakdown of the underlying indices on a market cap basis.
- sparkling 7y agoIndex funds are required to buy shares if the index it replicates (e.g. S&P500) includes that stock.