Ann: Becoming a substantial holder, page-4

It is an index firm ….so the shareholding should mirror the percentage that MSB makes up of the ASX200 index
It is basically automated
…
AI Overview

An index fund mirrors an index by building a portfolio that closely resembles the index's composition, aiming to match its performance. This is achieved through either full replication (investing in all index constituents) or partial replication (investing in a representative sample).
Here's a more detailed explanation:
1. Index Replication:

• Full Replication: The fund buys shares in all the companies or assets included in the index.
• Partial Replication: The fund invests in a smaller group of securities that behave similarly to the index as a whole.

2. Mimicking the Index's Makeup:

• Weighting:
  Index funds invest in the same assets and use the same weights as the target index.
• Portfolio Composition:
  The fund's portfolio aims to mirror the index's holdings, both in terms of the specific securities and their respective proportions.

3. Examples:

• S&P 500:
  An index fund tracking the S&P 500 would buy shares of the 500 largest companies listed on the U.S. stock exchanges.
• Other Indices:
  Similarly, index funds exist for a wide range of indices, including those tracking specific sectors (e.g., technology, healthcare) or other asset classes (e.g., bonds).

4. How Index Funds Work:

• Passive Management:
  Index funds are passively managed, meaning they don't actively try to outperform the index.
• Tracking Error:
  While index funds aim to track the index's performance, they may not perfectly replicate it due to factors like trading costs and differences in portfolio composition.
• Tracking Error:
  This difference between the fund's returns and the index's returns is called tracking error.

5. Benefits of Index Funds:

• Low Cost:
  Index funds are generally less expensive than actively managed funds due to their passive management style.
• Diversification:
  They offer broad market exposure and diversification across various sectors and asset classes.
• Simplicity:
  Index funds are easy to understand and invest in, making them a good option for beginners