“People might be owning some of that company, whether they know it or not — and whether they like it or not,” said Sam Stovall, chief investment strategist at CFRA Research.
That said, Trump Media would only be a small part of funds that track the Russell. It would be dwarfed by the holdings of larger companies including Microsoft, Nvidia and Apple.
However, Stovall said the Trump Media situation underscores one of the disadvantages of passive investing: Some funds mimic indexes that automatically add stocks based on rules, not based on a careful evaluation of the business’s fundamental strengths and weaknesses.
“You can end up with real dogs that, in my opinion, are not really worthwhile owning. The flotsam gets swept up with the jetsam,” Stovall said.
In this case, the Russell 3000 captures the 3,000 largest US stocks. During annual updates, certain stocks are added — not necessarily because of their earnings potential or the quality of their products, but because they are large enough to qualify.
“Investors seeking to capture a strategy reflecting broad US equities performance can confidently choose the Russell 3000 knowing there are no subjective inclusion or exclusions of stocks,” according to FTSE Russell’s website.
Vanguard and other index fund owners are not choosing to buy Trump Media necessarily. Anyone holding Russell index funds or ETFs is getting stuck with it due to pumping of the stock price. Anyone owning index funds other than special ESG funds is sponsoring a lot of people they may not approve of personally, hence the conservative backlash against them.