Equity · Core
Index Fund
An index fund holds a rules-based basket to match a published index — a bet that average ownership, cheaply, wins on fees.
Definition
The fund replicates (full or sampled) an index and accepts tracking error for cost. Cap-weighted indexes overweight what went up. An ETF or a mutual fund can both be index funds; the wrapper is separate from the rule.
Why it matters
Fee drag is the one certainty in active vs passive. The index is still an active choice of universe and weights.
Case
A global cap-weighted equity index became a US mega-cap fund in the 2010s. ‘Passive’ was a concentration decision.
How to read it
Index rule, tracking difference (not just error), and securities-lending. Cheap is not the same as representative of the economy.
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