But you have choices, if you want drilling and exploration buy XOP. THE GOOD THING ABOUT ETFs is they are transparent, you can see everything they own, in real time. If you don’t like what they own, sell it. Also, when I hear index funds, I thing broad indices. s&P, Russel 2000, etc. Sector funds are different
I have some options of different ones i think of a lot of instruments they are amongst the least volatile for sure. I know some have emerging markets in them which are little riskier for sure but as you say transparency is so good and thats a massive key to them
I think this was true 20 years ago. Today there are so many indices, and there is so much money tied up in index funds that I'm not not sure it's valid to assume that all indices operate in perfect isolation and will remain true to the spirit of their charter. A few thoughts: 1) Today there is a huge portion of the market invested in passive funds. Adding a stock to the SPY now has a quite significant effect on its market price. The index is modifying the very thing it is trying to track. 45% of the US market was invested through passive funds as of 2019. https://www.cnbc.com/2019/03/19/passive-investing-now-controls-nearly-half-the-us-stock-market.html 2) I also see tons of pressure being placed on companies (in general), and many of these companies folding to political/social/legal pressure. I don't think it would be at all out of the realm of possibility for someone like the NYS AG to call up an index manager and ask for a company that operates in a sector they don't like to be removed from an index. I would rate the odds as reasonably high that they might succeed. It's no skin off their back. 3) There's the old saying, "You get what you pay for." I'm not paying the people who run the indices. How hard should I trust that they have my best interest at heart? Look at what LME just did. 4) I remember people saying things like "no one could rig LIBOR". Compared to a lot of the more sophisticated cheating that has happened on Wall St, an index manager leaking a future change to an index seems like child's play. I'm not trying to say that something like SPY is more risky than buying a single stock, or even a handful of stocks. But for more volatile funds, I'm starting to think I'd be better off buying a dozen or two of the underlying stocks. I'm concerned about sale of underlying stock at a poor price. I'm concerned about buying into bankrupt "zombie" companies because they manage to get included in an index. I'm concerned that frontrunning changes in the composition of an index will chisel away your potential profit over time. I'm concerned that the index can "change the rules" at any time.
You're waaaay more concerned than you should be. If you're willing to risk "limited diversification" then perhaps you would be better off owning a portfolio of individual securities.