Index fund is a special existence in the fund market, because index fund passively tracks the index. By buying the constituent stocks of the index and adjusting with the adjustment of the index, the tracking error can be reduced and the index performance can be tracked.

However, many index funds outperform the index. Since it is tracking the index and buying the constituent stocks of the index, why does the index fund outperform the index?

First of all, the index base is affected by the dividends of constituent stocks. The trend of the index we see is that dividends of constituent stocks are not considered by default. However, index funds can get dividends from stocks and count them into the fund's net value.

If it is a fund with a relatively high dividend yield, it is easy to outperform the index by relying on dividends.

At the same time, index funds also have some ways to improve their returns, such as issuing new shares. When an index fund buys the constituent stocks of the index, it can participate in market innovation by holding stocks. Compared with individual investors, the index fund has a higher probability of winning, and the fund scale is too large, so the new income will be smoothed, but the income included in the fund net value will outperform the index.

Refinancing is also a way for index funds to increase their income. The specific operation is to let the fund lend its shares to short-selling investors and get a certain interest income.

Index funds will also underperform the index.

For example, in the stage of market expansion. When the market is skyrocketing, investors may buy a large number of index funds in a short time at this stage. Index funds get cash from investors and then replace it with stocks. It will take some time, and the time difference will make index funds miss some rising market conditions.

But we don't need to worry too much about this situation, because in the long run, most index funds in the market outperform the corresponding index for a long time.