In a Ftse Tracker, what would happen if a stock was relegated?

bowlhead99

Tom99 wrote: »

[FONT=Verdana, sans-serif]They are therefore buying/selling shares because money is flowing into or out of the fund not because the price of the share has gone up or down.[/FONT]

They are not buying more shares of the company because it has gone up in value, but they are buying more shares of the company because they have new money to spend (provided by their investors) and they are putting relatively more of the money into the ones where the price has gone up and relatively less into the ones where the price has gone down.

So, they are not forced to buy more shares in the expensive companies just because those companies' prices rose; but simply, because those companies' prices rose and they have money to spend.

As Thrug says, if there are few sellers for a particular stock, its price will rise. Resulting in trackers having to buy more of it (assuming trackers have money to spend, which they often do).

MoneyGeoff

NewInvestor1 wrote: »

With the rise of tracker funds, how can everyone keep buying and buying ftse 100 stocks? What if no one holding those shares want to sell?

Tracker funds don't just invest in FTSE and FTSE doesn't just mean FTSE100.

FTSE100 is a terrible index to track. There are global trackers and many other trackers that have a very small percentage in FTSE100 companies.

Tom99

bowlhead99 wrote: »

As Thrug says, if there are few sellers for a particular stock, its price will rise. Resulting in trackers having to buy more of it (assuming trackers have money to spend, which they often do).

[FONT=Verdana, sans-serif]If the tracker has money to spend they will have to buy more stock whether the price has gone up or down. The price of the stock going up does not cause the tracker to buy more of it.[/FONT]

bowlhead99

Tom99 wrote: »

[FONT=Verdana, sans-serif]If the tracker has money to spend they will have to buy more stock whether the price has gone up or down. The price of the stock going up does not cause the tracker to buy more of it.[/FONT]

It causes them to allocate more of their new capital to that stock rather than to other stocks, assuming it has gone up relatively more than other stocks, and assuming, as you say, that the tracker has money to spend and will have to buy more stock (whether the price has gone up or down).

So... trackers with money to spend will have to buy more total stock across their portfolio to minimise their cash holdings, whether the price has gone up or down. And if it has gone up, relative to other things, they will allocate more pounds to it than if it had gone down relative to other things.

Tom99

bowlhead99 wrote: »

It causes them to allocate more of their new capital to that stock rather than to other stocks, assuming it has gone up relatively more than other stocks, and assuming, as you say, that the tracker has money to spend and will have to buy more stock (whether the price has gone up or down).

So... trackers with money to spend will have to buy more total stock across their portfolio to minimise their cash holdings, whether the price has gone up or down. And if it has gone up, relative to other things, they will allocate more pounds to it than if it had gone down relative to other things.

[FONT=Verdana, sans-serif]So just to summarise, a tracker does not buy more of a stock just because of a price increases, which is the point I was originally making. It will only buy more stock when they have new money to spend.[/FONT]
[FONT=Verdana, sans-serif]The amount of that new money allocated to a particular stock will depend entirely on its relativity to other stocks in the index not on whether the price of that stock has gone up or down.[/FONT]

nrsql

If it's a ftse 100 tracker then it depends on the tracker conditions. It will have to align with the index at some point but can be ahead or behind. May use derivatives.
Usually doesn't have to buy/sell an the day the index is changed .