passive money management - economics from the provider perspective

[rjbraun]

I am curious to learn the economics of running a passive equity index fund, such as for the S&P 500. Everything I find searching the internet is from the perspective of buying an index fund. I wonder what is involved for the fund manager - not the marketing end but the "nuts and bolts" of managing a passive strategy that will match the benchmark, less fees.

I figure the manager would need to hold each of the 500 stocks in the index, rebalance as the market moves and then also be prepared to transact when there are index changes, i.e., sell the company coming out of the index and buy its replacement. All of those activities would seem to have the potential to introduce tracking error. On top of this, skill would be needed to handle fund inflows and outflows to avoid additional tracking error.

What are the mechanics of what I described? How hard is it to do, what techniques are involved? How large a staff is involved, and what skills do they need? How advanced / costly is the technology to manage the portfolio?

If anyone can share some reference materials on this topic, I would appreciate it!

Thank you. (I am not considering this as a possible business opportunity, I am just curious to know what is involved. )

[David Jay]

...rebalance as the market moves...

This is not required with a cap-weighted fund. This characteristic is one of the reasons why a cap-weighted fund can have low costs.

[retired@50]

I am curious to learn the economics of running a passive equity index fund, such as for the S&P 500.

Check out Rick Ferri's interview with Gerard O'Reilly and Rich Powers from Vanguard.

Podcast: https://boglecenter.net/bogleheads-on-i ... isode-037/

Forum discussion: viewtopic.php?t=357177

Regards,

[FoundingFather]

I am curious to learn the economics of running a passive equity index fund, such as for the S&P 500.

Check out Rick Ferri's interview with Gerard O'Reilly and Rich Powers from Vanguard.

Podcast: https://boglecenter.net/bogleheads-on-i ... isode-037/

Forum discussion: viewtopic.php?t=357177

Regards,

I was going to recommend the same interview - very interesting overview of some of the administrative logistics for an index fund.
If you are also curious about how a bond market index fund is done, Rick Ferri has a similar interview regarding BND as well.

Founding Father

[rjbraun]

...rebalance as the market moves...

This is not required with a cap-weighted fund. This characteristic is one of the reasons why a cap-weighted fund can have low costs.

Interesting - thanks

[rjbraun]

I am curious to learn the economics of running a passive equity index fund, such as for the S&P 500.

Check out Rick Ferri's interview with Gerard O'Reilly and Rich Powers from Vanguard.

Podcast: https://boglecenter.net/bogleheads-on-i ... isode-037/

Forum discussion: viewtopic.php?t=357177

Regards,

I was going to recommend the same interview - very interesting overview of some of the administrative logistics for an index fund.
If you are also curious about how a bond market index fund is done, Rick Ferri has a similar interview regarding BND as well.

Founding Father

Great, thank you for the links! I will certainly have a look.

And, yes, I am definitely interested to learn the same for passive bond management, such as for BND. I figured I would start first with the more straightforward situation of an equity index fund before considering bonds. I will plan to check out Rick Ferri's interview then!

[retired@50]

I am curious to learn the economics of running a passive equity index fund, such as for the S&P 500.

Check out Rick Ferri's interview with Gerard O'Reilly and Rich Powers from Vanguard.

Podcast: https://boglecenter.net/bogleheads-on-i ... isode-037/

Forum discussion: viewtopic.php?t=357177

Regards,

I was going to recommend the same interview - very interesting overview of some of the administrative logistics for an index fund.
If you are also curious about how a bond market index fund is done, Rick Ferri has a similar interview regarding BND as well.

Founding Father

Great, thank you for the links! I will certainly have a look.

And, yes, I am definitely interested to learn the same for passive bond management, such as for BND. I figured I would start first with the more straightforward situation of an equity index fund before considering bonds. I will plan to check out Rick Ferri's interview then!

Here is the podcast that discussed bond index fund management.
https://boglecenter.net/bogleheads-on-i ... pisode-45/

Here is the forum discussion.
viewtopic.php?t=376451

Regards,

[Gaston]

If anyone can share some reference materials on this topic, I would appreciate it!

Maybe this will help.

https://crsp.org/files/JOI_CRSP_Index_Article.pdf