Lost in the talk that index funds typically outperform actively managed mutual funds is the reality that index funds are also managed. When a buyout occurs or a rare debacle wipes a company out, indexing chiefs huddle to fill the vacancy. With more predictability, towards the end of the year the stocks that make up an index are evaluated to see if things need to be shuffled around to ensure relevance.
Last night, it was the popular Nasdaq 100 Composite's turn to rattle its constituency. Moving out are shares of ADC Telecommunications
You were probably nodding your head at some of the names getting the boot. Ericsson is no Nokia
As a tech-intensive inn with room for 100 boarders, eight out means eight in. Replacing those names in the index a week from Monday will be Lam Research
They may not all be household words. Some may even appear surprising at first glance. Yes, ATI's origin lies in the dry business of computer graphics processors, but its recent forays in HDTV, video game consoles, and cell phone graphics are enticing. Research In Motion has excelled with its BlackBerry in ways that previous handheld devices have flunked out.
That doesn't mean one should take the index moves as buy or sell recommendations. Only fund families tied to the Nasdaq Composite and the Nasdaq 100 Trust
That way, maybe you'll be ahead of the game by buying into next year's additions -- and unloading the deletions -- a year early.
How do you feel about indexing? Is it an easy way to achieve equity diversification with leading companies, or will the right managed mutual funds treat you better? Is there more to telling a good index fund apart from a bad one than just annual expenses? All this and more -- in the Index Funds discussion board. Only on Fool.com.
