So, I also get confused between packeting and buffering many times.
But here if you see, in packeting we actually do partial stock split between 2 indices such that half portion is in one index and other half in another index such that there is a gradual process of stock moving from one index to another.
Whereas, in buffering we create a boundary around where index market cap changes such that the stocks in that buffer zone are included in the index resulting in more stocks in the portfolio than the actual index. You can think of buffering as pre-emptively adding stocks in the critical zone to index portfolio before they are confirmed.
So, in this question since we are asked that why MANAGER B has more stocks than index, it shows pre-emptive addition due to buffering and not packeting.
Even in packeting when you are splitting the market cap of a mid cap stock into a mid cap index and a large cap index….the large cap will have that stock until it is confirmed to be a large cap…isnt the large cap index holding more stocks?
So, you can think of this as even if we are spilting a stock into 2 indices, partial share is there in one index and not the whole share. In US, indices even hold partial shares. But in bufffering whole stock is included. So, at any given point it can be argued that due to buffering more stocks are there than due to packeting only.
So, I also get confused between packeting and buffering many times.
But here if you see, in packeting we actually do partial stock split between 2 indices such that half portion is in one index and other half in another index such that there is a gradual process of stock moving from one index to another.
Whereas, in buffering we create a boundary around where index market cap changes such that the stocks in that buffer zone are included in the index resulting in more stocks in the portfolio than the actual index. You can think of buffering as pre-emptively adding stocks in the critical zone to index portfolio before they are confirmed.
So, in this question since we are asked that why MANAGER B has more stocks than index, it shows pre-emptive addition due to buffering and not packeting.
Even in packeting when you are splitting the market cap of a mid cap stock into a mid cap index and a large cap index….the large cap will have that stock until it is confirmed to be a large cap…isnt the large cap index holding more stocks?
So, you can think of this as even if we are spilting a stock into 2 indices, partial share is there in one index and not the whole share. In US, indices even hold partial shares. But in bufffering whole stock is included. So, at any given point it can be argued that due to buffering more stocks are there than due to packeting only.