What is the difference between investing in a fund such as the S&P fund, and investing in a random sample of 1/4 of the S&P fund individual stocks directly?
Investing in a large enough random sample of a fund’s, an indexes or a stock exchange’s underlying holdings should, on average (see Bayesian probability), reflect the same returns as holding the whole fund, index or exchange.
People may bother to do this, if motivated enough:
- to avoid paying fees to a fund manager,
- and wanting personal ownership of share certificates, the feeling that you, yourself have direct control over your shares, rather than some abstract fund manager
it is easy enough to do this from an administrative point of view on the New Zealand stock exchange. (Although I take the point made a number of times on this site that the return on the New Zealand stock exchange held in its entirety over the years (or NZX 50 only(?)) has been a bit rubbish.)