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This is how the dump begins. Onto the index huggers and pension funds
by nextworddev 2y ago
This is how the dump begins. Onto the index huggers and pension funds
- bhouston 2y agoYou are correct, this will affect both Intel and NVIDIA's stock prices, although it may already have been baked in depending how predictable this was. Index funds are big business. Dropping Intel and replacing it with NVIDIA will cause a rebalancing of the DJIA index fund investments from Intel to NVIDIA. Yup, there is an index premium.
- khuey 2y agoMajor index funds don't follow the DJIA. $DIA has 5% of $SPY's assets under management.
- nextworddev 2y agoThat’s half the story, there’s a lot of private funds that passively track as well, it just comes down to what’s the net flow due to rebalance of public + private indices. Could be a lot, could be that much
- bhouston 2y agoDIA has ~$35.62 billion, IYY has ~$2.5B in the DJIA. There are only 30 companies in it (~$12T total value), so it averages $1.1B per company. But the S&P 500 index funds has somewhere around ~$2.5T invested, but that is spread across 500 companies (~$40T total valuation), so it averages $5B per company. Thus you are correct the S&P 500 is more influential in terms of index fund reallocations, but only roughly 5x more influential.
- sooheon 2y agoPut another way, IYY and DIA combined hold <0.1% of NVDA's market cap.
- staticman2 2y agoThe dow has nothing to do with index funds. The dow industrial average is price weighted. The s&p 500 is market weighted. No competent index would follow the dow- it doesn't even make sense conceptually, it has zero relation to the economics of the companies when you use price weighting, and 30 companies is a stupid low number. There is, as far as I can tell, zero point to the dow, it's a completely useless tracker that is reported on because people talk about it because it's reported on.
- bhouston 2y ago> The dow has nothing to do with index funds I am not sure what point you’re making but there is ~$38B invested in index funds (the ones I mention in the previous post) that track the DJIA. Granted it is a fraction of the index funds which track the S&P 500.
- dkrich 2y agoThis may make sense in theory but in reality is wrong. The DJIA has historically had a very close correlation to the S&P. Plus there is an inescapable psychological aspect to the Dow that is unique. When the Dow is off 1500 points it hits much differently than the S&P falling 200 points.
- dubcanada 2y agoI have a feeling that is because every company in the DJIA is also in S&P, and most are very heavily weighted in S&P. Rather then companies within the DJIA doing as good as companies in the S&P.
- ywvcbk 2y ago> inescapable psychological aspect to the Dow that is unique. Sounds about the same as: > that is reported on because people talk about it because it's reported on. The unique aspect is that a randomly weighted index is just outright stupid however you look at it.
- tripletao 2y agoThe S&P 500 is cap-weighted, so the average value per company is meaningless. Nvidia is currently 7% of the index, while the smallest member is 0.01%. Since Nvidia was already a part of the S&P 500 (and other similar indices) prior to its big run, those index investors generally profited from its rise. New flows into those funds do help prop it up, though. The DJIA is a weird historical relic, and there's little reason for anyone to buy a fund tracking it. It's possible that those who did anyways will end up holding a tiny fraction of the bag due to this change, but it's not a big effect.
- mrtransient 2y agoCould you please explain how do you see the proposed dump?
- nextworddev 2y agoPumping a big momentum trade and selling it upon index rebalance is a classic buy side trade
- mynegation 2y agoIndex funds follow indices and to follow an index asset manager holds a weighted basket of respective stocks. If stock is excluded from the index, asset manager sell it off and that puts downward pressure on the stock price. Reverse happens if stock is included into the index.
- jruz 2y agoThat’s what common sense makes you think, reality is big money needs someone to sell into their NVDA stock and this is how they do it. Just look at what happens to the stocks every time they get added or removed from the index, the complete opposite of common sense.
- csomar 2y agoLiquidity is held by funds. Funds (some of them pensions) have rules where to allocate. They just follow these rules and allocate. Now this change will change the allocation to Nvidia. Investors can tap into this liquidity. The $$$ are then transferred from the funds (some of them are pensions, uh I mentioned that) to the investors. AI bubble then burst. Funds are “adjusted” and someone is not getting his pension.
- meta_x_ai 2y ago[flagged]
- coffeebeqn 2y agoIndex huggers already own plenty of Nvidia (and Intel)? SP500 and total stock market funds have 4-7% in Nvidia at this point