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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Gordon Quickstad who wrote (12968)	7/9/1999 1:37:00 AM
From: Larry Brubaker	Respond to of 27311

<<They still have an incentive to "beat" the index (to make up for trading losses for liquidity, that are inevitable) and so would surely pick their entry point based on keen observation>> Gordon, that is not the way it works with index funds. Index funds are not expected or even encouraged to beat the index. In fact, beating the index is a no-no for index funds. Why? Because an index fund that beats the index isn't really an index fund. The expectation of index funds is that they will slightly lag the index, because the index itself has no expenses, and pays no commissions. The way to track the index as closely as possible is to replicate the index as of the date it is reconstituted. It is not a problem to index fund managers if their buying of a few of the smallest cap. stocks being added to the index results in a temporarily higher price for that stock. Why? First, because that stock represents a minute portion of their portfolio. Second, because if the stock is driven up by their buying, that will be reflected in the performance of the index. The same index which they are trying to track as closely as possible.