Most exchange-traded funds (ETFs) aim to reproduce an index’s return, less fees. This is referred to as ‘passive’ investing, because trackers do relatively little buying and selling.
For a fund tracking a capitalisation-weighted index (such as the FTSE 100), trading is only necessary when stocks enter or exit the underlying index. The index itself selects companies by their market size, and buying and selling occurs when stocks cross above and below the threshold for inclusion.
In such an index fund, turnover – purchases plus sales, divided by the fund’s value – can be as low as [...]
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