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
An index fund is basically a basket of stocks from a certain index. The companies that create these funds buy the stocks in the index at different percentages so that the fund itself will mimic the same movements as the index it tracks. This way, if say, Amazon takes off because of great earnings, it doesn’t skew the fund’s price upwards because all the other stocks will smooth out the price movement.
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