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0 pointspmiller25y ago0 comments

Not all ETFs that track an index actually hold every component of the index. They do it by holding representative securities that correlate well with the movements of the index, and supplementing with derivatives when necessary.

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colechristensen5y ago

This is the short version of the SPY prospectus:

>The investment seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index (the “Portfolio”), with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.

Commodity and leveraged ETFs play games with futures and options to achieve goals, I'm not aware of any significant index focused ETFs that don't achieve their tracking goals without mostly holding common stock.

Even if they're holding derivatives instead, it's just a layer of indirection and has substantially the same effect as portfolio rebalancing.

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