Index Rules and Fund Trading Prices

The rules, the candidate universe, the entry tests, the weighting method, the rebalancing schedule, define the index before anyone buys anything. A company may leave an index because it no longer meets the rules. Removing it does not erase losses the fund incurred while holding it.

The number of constituents alone tells you little about concentration. Weights tell you more: look at industry, region, currency, and the top positions. And if you hold several index funds, check whether they quietly own the same companies. In a market-cap weighted index, the giants move the whole number, so concentration is baked into the design.

Some funds hold the full basket. Others use a representative sample. Fees, cash holdings, trading costs, and replication methods can cause the fund's return to differ from the index's return. Compare that tracking difference over the same period; tracking error measures how much the return differences fluctuate.

When comparing the fund against the index, line up the windows, the currency, and whether dividends are counted. Fees that have already been cut out of NAV are part of the fund's story; your own account does its own arithmetic. The bookkeeping sits at Fund Net Asset Value and Personal Investment Returns.

NAV is the asset value per unit, liabilities out. The exchange has its own price, set by whoever bids and offers at any given moment. Between the two lives premium or discount.

Premium = trade price ÷ same-basis NAV per unit − 1.

Work it once: NAV at 1.00, you pay 1.30. Premium at entry, 30%. NAV drifts up to 1.10 and the market price follows it home. You're down 0.20 on a 1.30 outlay, about −15.38%, before a single trading cost. The underlying went up, the premium came down, and the gap to your entry price did the damage.

When checking these numbers, match the NAV dates and the timestamp of any intraday estimate, and mind the currency. Cross-market funds trade at different hours, so a printed NAV from yesterday's close is not a live price. Add the bid-ask spread and fees on top of everything.

A percentile ranks the current reading inside a chosen history: monthly P/E over ten years, sorted, and where today sits in that pile. Change the window, the sampling frequency, the earnings definition, the treatment of loss-makers, the constituent list, and you get a different answer. Say which one you used before quoting it.

Understand that a percentile answers one question, "is this historically cheap or expensive?", and only that one. Turning it into a buy or sell rule requires backtesting across full cycles, with transaction costs, idle cash, and fees all in the ledger. The applied piece lives at Picking an Index Fund: What to Compare Before You Buy. On the deeper link between price and what a company actually returns: Stock Returns and Purchase Prices, with the broader thread at Turning investment returns into actual gains.