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When a company drops out of the index, the fund sells all its shares in it and buys shares of the new company that took its place.
by stefano 7y ago
When a company drops out of the index, the fund sells all its shares in it and buys shares of the new company that took its place.
- xxxtentachyon 7y agoBut it should be said that the price that the fund manages to sell the shares at could be far lower than the price at the time the company exited the index since many funds and others will be trying to get out at the same time.
- hash872 7y agoSo wait, is throwaway2048 correct that this type of analysis misses companies who dropped out? Or are the gross return numbers including selling the shares of 'leaving the index' companies at a loss? I would imagine the latter and so his point is wrong, but I'm open to being corrected
- deleted 7y ago[deleted]
- fauigerzigerk 7y agoAre you saying that there is a huge untapped arbitrage opportunity?
- xxxtentachyon 7y agoNope, just that even if you do have data that captures when and at what price a company exited an index, you still wouldn't quite be able to work back to the performance of a tracking index fund (because you don't when and what price the index fund sold)