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My understanding of index funds like QQQ and SPY, is that they are built to mirror the index movements from which they are created. And as is typically the case, the index funds move with the index both in direction and magnitude. But there have been a number of times that the index and a corresponding index fund have moved quite differently. The most recent large difference that I noticed was a couple of days ago on the 24th of December where QQQ was down ~2% and the Nasdaq was down 5%.

Why was there such a difference in the movement of QQQ and Nasdaq in this case, and why does this occasionally happen?

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From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.

Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.

The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.

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    Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further. – Ben Voigt Dec 27 '18 at 19:02
  • He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->) – Bob Baerker Dec 27 '18 at 19:08
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    He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment. – Ben Voigt Dec 27 '18 at 19:10
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    Sorry, my bad. I'm not multi-taking well today :->) – Bob Baerker Dec 27 '18 at 19:35
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An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.

An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.

A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.

And so only an open-end mutual fund should exactly match an index that it is based on.

  • Great answer, welcome! – quid Dec 27 '18 at 18:41

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