Since an index fund is ran by a separate company to follow a market index (like the S&P 500), and is not actually the index, how does it match the index movement?
I know the fund managers buy shares of stock represented by the index. But it’s a separate stock that can be traded by investors, so it can take on a trend of it’s own right?
In: Economics
you just look up how the index is defined, i.e. which company at which relative weight.
You then copy that definition and put the shares into your basket at the same relative weights.
That’s all the work you need to do, all in the beginning. It will then have the same performance (minus market fees).
You only really need to adjust your basket when the index definitions change (companies dropping in and out, or weights change)
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