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When index funds track the same index, why then do they have different prices? For example, I see a large difference between Vanguard, Fidelity, and Schwab index funds when they all track, for example, S&P500. Is the price proportional to their volume?

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Price, whether related to a stock or ETF, has little to do with anything. The fund or company has a total value and the value is distributed among the number of units or shares.

Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding.

Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion.

Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple. Apple's market capitalization is about $630 billion while Google's is about $560 billion. Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion.

It's all just a matter of value divided by shares/units.

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    "just $360 billion" :) – elmer007 Oct 21 '16 at 14:12
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    @elmer007 Hey, that's almost as much as Quid spends on lunch in a WEEK! – Jay Oct 21 '16 at 15:43
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Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading.

To see this, use the "compare" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.

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    The comparison you talk about is REALLY important. Index funds often don't contain ALL the shares in the underlying index to cut costs, so their tracking fidelity will suffer. The "best" fund has highest correlation with the underlying index after tax. Absolute value of single share is irrelevant, but tracking performance is. – Floris Oct 21 '16 at 11:54
  • @Floris This is the answer I was looking for. I pulled up performance for several "index" funds over the same time period, and they varied by a significant percentage. If they all had equal weighting in each company that is a part of the index, they should all be the same. – Michael Oct 21 '16 at 12:20
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To add on to the other answers, in asking why funds have different price points one might be asking why stocks aren't normalized so a unit price of $196 in one stock can be directly compared to the same price in another stock. While this might not make sense with AAPL vs. GOOG (it would be like comparing apples to oranges, pun intended, not to mention how would two different companies ever come to such an agreement) it does seem like it would make more sense when tracking an index. And in fact less agreement between different funds would be required as some "natural" price points exist such as dividing by 100 (like some S&P funds do).

However, there are a couple of reasons why two different funds might price their shares of the same underlying index differently.

  1. Demand - If there are a lot of people wanting the issue, more shares might be issued at a lower price. Or, there might be a lot of demand centered on a certain price range.

  2. Pricing - shares that are priced higher will find fewer buyers, because it makes it harder to buy round lots (100 shares at $100/share is $10,000 while at $10/share it's only $1000). While not everyone buys stock in lots, it's important if you do anything with (standardized) options on the stock because they are always acting on lots. In addition, even if you don't buy round lots a higher price makes it harder to buy in for a specific amount because each unit share has a greater chance to be further away from your target amount.

Conversely, shares that are priced too low will also find fewer buyers, because some holders have minimum price requirements due to low price (e.g. penny) stocks tending to be more speculative and volatile.

So, different funds tracking the same index might pick different price points to satisfy demand that is not being filled by other funds selling at a different price point.

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