Comment by yoavm
12 hours ago
It doesn't conflate anything. The inclusion rules weren't given to us by God, they were created by humans because they thought, rightfully, that people will be interested in that as a product ("prefer"). As the market changes, the product can be adjusted.
Lastly, there's no such a thing as a real "market proxy", except the whole market. If you scope any subset of it, you're making some inclusion and exclusion rules.
The S&P 500 is primarily a benchmark index, not a list of approved stocks to invest your 401k into. The GP is conflating the two. GP is claiming there's a subset of stocks that people don't want to invest in, and these should not be included in the S&P 500. Sure. But, per the S&P website, the S&P500 was created as a benchmark of U.S. large-cap equities. On their website, S&P advertises it as "the best single gauge of large-cap U.S. equities".
The S&P 500 index was created in 1957. It was created decades before the first index fund (by Vanguard), which copied the index in 1976.
The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in. GP is arguing that many passive investors, who blindly follow the S&P500 index, don't want to invest in these upcoming unprofitable mega-caps. That's not how the index investing works, that's picking and choosing approved sectors of the market, which is active investing. If you want active investing, buy an active investing product, don't buy a fund that copies the benchmark index.
> The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in.
This particular piece is incorrect. S&P has preexisting rules to pick and choose which large-cap equities to follow. They had a discussion about whether to drop those rules in order to become a more accurate benchmark, and they chose to stick with what they had been doing.
Regardless of what they say they were doing (or what they’re trying to do), the fact that they changed nothing means that what they had been doing is the same as what they are doing now, ie, picking and choosing stocks at the risk of diminishing their benchmark capabilities.