How does an index funds like Schwab® S&P 500 Index Fund (SWPPX) deal with S&P500 adding new companies and removing old companies that don’t preform well?
What happens to someone holding a SWPPX fund? Does the increase or decrease in the index make someone holding SWPPX fund pay more to match the index or receive money back?
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In: Economics
Those funds try to track the index very closely so they want to adjust as quickly as possible. They just sell all of the shares and transfer the money into shares of the new companies that got moved up. I don’t think it really affects you much, since it’s not really very different than another stock going up or down in price. But it can drastically impact the price of the stock that left the index because those funds are so big they now own a really big portion of shares of some of the companies, and they will all dump all those shares at the same time.
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