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Front running customer purchases is not the concern. In the running of an index fund there’s many levers you can pull to create revenue streams that don’t show
by pembrook 2y ago
Front running customer purchases is not the concern. In the running of an index fund there’s many levers you can pull to create revenue streams that don’t show up on expense ratios.
Funny business can absolutely be pulled during rebalancing.
Another big one is securities lending income. Vanguard pays that out to investors which effectively creates negative expense ratios in certain funds. Index funds from other issuers don’t necessarily share that securities lending income with customers.
- jliptzin 2y agoI’m not disputing other funny business, I just don’t think they are making money front running passive index investors.
- ilya_m 2y agoIt's not about front-running investments _in_ passive index funds, it's about front-running investments _by_ passive index funds, which, of course, ultimately comes out of the investors' wallets. As a practical matter, since dealing in mutual funds' shares is settled after market, "front running" these transactions would be problematic. (Impossible, I'd say?)