Comment by convolvatron
43 minutes ago
but any upside to second guessing the index gets allocated to the management, right? just like any downside, so its kind of immaterial for the end users, they're effectively bought into to SpaceX anyways
43 minutes ago
but any upside to second guessing the index gets allocated to the management, right? just like any downside, so its kind of immaterial for the end users, they're effectively bought into to SpaceX anyways
They are judged by how close to the index their returns are. If there a significant deviation either way they are judged harshly. Each fund is different, but they typical thing they will do is buy a competitor of some company in the index once in a while.
Typically managers pay is such that they don't get awards for guessing correctly, so they won't get any upside from a correct second guess, and they will see downsides from incorrect guesses.
Also unlike traditional funds, there are not enough managers to follow every company, so they can't pick stocks that will win just because they don't have enough to time research the stock. When they pick a stock they are just looking at the high level will this company perform like the other peers in the industry long term.