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Comment by bryanlarsen | Hacker News Reader

The flaw is the limited float. Indexes will be forced to buy a huge number of shares which don't exist, driving up the price.

For general investors if this is going to eventually happen, the earlier the indexes buy in the better. Otherwise more sophisticated investors will buy ahead of the indexes and grab the profit.

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if they weighted (fully) by float (perhaps the average float from the trailing 90 days to the re-balance) it would not be as easy to game. The Nasdaq is accounting for float, but not completely.

Aren't basically all the huge serious index funds float weighted?

Matt Levine wrote (uh, yesterday?) that the Nasdaq 100 was adding it (not a full linear weighting....) right now to accommodate this scam.

Yeah, the OEX is a more serious index for more serious people.

Ok fair, I forgot that QQQ is as big as it is.

Edit: wait, but QQQ is float adjusted?

What are the biggest not-float-adjusted index funds?

I don't know about the funds, but it's really about the index. Both for the index funds that use the index, and the active mutual funds and index funds benchmark to that index.

Why is it really about the index though, if the index fund doesn't track that public index?

If the index fund is tracking some proxy that is float weighted, isn't that what matters? At least when it comes to people's money.

Index funds track an index, thus the name

Yes but they don't track the literal index that we the public see.

They track a float weighted approximation of it

(Typically - I thought QQQ did based on your earlier comment, but it also is float weighted)

They are, but SpaceX is trying to get rules changed. They want the index to buy at a multiple of the float, so they release say 5% but get bought as if they had released 15% float. They also normally wouldn't be eligible for index inclusion for ~1 year, after showing multiple quarters of good stewardship, etc. They're trying to bypass all that

Yes, the MSCI World and FTSE World that many broad ETFs and funds track are float weighted.

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