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Comment by bradleybuda | Hacker News Reader

Not buy these index funds. If you don’t want to own the entire market, don’t buy funds that seek to own the entire market. Funds like ESGV which exclude companies with poor governance have existed for a very long time - I can’t find a clear answer as to whether or not it will buy SpaceX, but I’m sure you can find funds that cater to your desires.

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That ignores the actual issue here, which is the change in rules. Index funds already seek to own the entire market, and when most people chose these index funds there were rules about when newly listed stocks get purchased by the funds. And now those rules are being changed.

Index funds generally try to match the performance of the index, but most are not required to hold the same companies as the index itself does. They typically do, but managers often have choices.

> Index funds already seek to own the entire market, [...]

No, it depends on the index in question.

Yes, most index funds don't literally intend to own the entire market for any sufficiently broad interpretation of the word "entire."

But the point is that we have notable index funds which are marketed to customers as having the intention to own segments of the market according to certain rules, and they are changing those rules with relatively short notice and for reasons that seem suspicious to many customers.

> Yes, most index funds don't literally intend to own the entire market for any sufficiently broad interpretation of the word "entire."

I mean that your index doesn't even have to own a segment of the market. Just look at eg how the Dow Jones Industrial Average is constructed. When a company has a stock split, it changes its weight in that index. That has nothing to do with 'the market'. (Stock splits have approximately no influence on your weight in the S&P500.)

Or you could have an index that captures all the stocks whose ticker starts with X minus those that start with Y plus the current temperature in Frankfort, Kentucky, in Rankine degrees.

The problem is I'm already in a S&P500-tracking ETF, for a decently large amount of money. Selling it off would be a big taxable event for me, something I don't want to do.

Could you use a prediction market (or Spread Betting in the UK) to hedge against your ETF loosing money during the period? If the ETF lost value, the hedge would gain it back and vice versa. You wouldn't need to sell the ETF and you'd only be liable for tax on gains from the prediction.

Would you be taxed even if you put it straight into another fund? Genuine question.

Yes, because when you sell it, you get cash and profit. Profit is taxable, in Germany they tax it with 25% + Solidarity Tax + Church Tax (if you are a member of a church). After, you can go ahead and buy another fund, but in between you "shed" a significant amount of money.

Details depends on jurisdiction, of course.

In the US, you would likely also have to pay capital gains taxes for such a trade. (I think.)

In Singapore, in contrast, swapping between funds like this would not have any tax implications.

However they are literally changing the rules of what "the entire market" means to include those companies sooner that they would have been when people bought those indices.

I want to own the whole market AFTER the due process of price discovery. This was always understood as new stocks will have a couple quarters to prove themselves before being included.

There is a ton of research that almost every IPO on average goes down in the first 6 month. That's why they are not included by default.

Index funds don't represent "the entire market" anyway. They are a diversified selection of stocks choosen according to some rules.

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