This is not true! A really basic cap-weighted index fund mechanic is that they automatically track the index as prices move, with no trading required. This is literally the reason that they are called *passive* funds.
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furthermore the S&P 500 itself, by virtue of being cap weighted drops companies when they fall which is the definition of momentum investing
To your first point, yes absolutely, but that creates *absolute* momentum (al companies go up together) not *relative* momentum (biggest winners rise more)
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To the second point, yes I agree, I don’t think I have ever argued with this, in fact I explicitly talked about index adds/deletes as an exception when a passive ETF would need to trade (as well as new issuance or buybacks)
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I guess - I commonly say that the indexing complex is a source of a large amount of incremental momentum investing relative to the status quo it supplanted and feel justified statistically and causally in saying so given the above -- tho I agree mechanically re S&P itself
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the biggest winning ETFs get larger inflows, statistically, and have for over 7 years - which - because there are different indices -- drives relative outperformance of names therein -- which is explicitly a momentum effect
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Yes I completely agree, eg the names in the ARK ETFs are clearly going up because of inflows to those ETFs, I have never claimed otherwise! But importantly *they are all going up together* in fact they have become super correlated purely by virtue of being held by ARK.
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