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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (22129)	7/23/1998 2:11:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 94695

Why? If they hold th index its value goes up - they don't have to buy more. David, as the largest cap stocks rise in a narrow market advance like we've had, their weighting grows as they are outperforming the index. A few things happen - First, any new money coming into the index funds automatically gets weighted more heavily into the stocks that have risen the most and less heavily into those that have fallen or underperformed. Second, since they are outperforming the index, they attract even more direct buyers (relative strength, momentum, etc.). Third, since actively managed funds are more likely to be holding the many smaller stocks that aren't doing as well as DELL et al, those funds underperform, money moves from the managed funds to index funds, and the index funds have to buy much more of the very large caps than they do the smaller stocks that the managed funds are selling. The rich get richer and the poor get poorer. Of course, in an environment of net redemptions from index funds, the reverse would happen. The largest caps would have to be sold in greater quantities and underperformance of large caps and index funds would feed on itself. Bob