Jun

10

Can Stock Indexes Afford to Ignore SpaceX?

Another side to the argument deserves more scrutiny than it receives amid enthusiasm for technological innovation and market capitalization milestones. Institutional incentives have changed radically since index inclusion became a major event. And the mechanism by which being a component of a stock index has become important is beyond merely symbolic. The growth of passive investing now triggers billions of dollars in mechanical purchases from index funds and exchange-traded funds benchmarked to major indices. In effect, index decision committees now exercise considerable influence in private capital allocation decisions that were once determined more organically through decentralized management decisions and market processes.


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