Editing Passive management (section)

===Implementation methods===
'''Full replication''' in index investing means that manager holds all securities represented by the index in weights that closely match the index weights. Full replication is easy to comprehend and explain to investors, and mechanically tracks the index performance. However, full replication requires that all the index components have sufficient investment capacity and liquidity, and that the assets under investment management is large enough to make investments in all components of the index.

'''Stratified sampling''' in index investing means that managers hold sub-sets of securities sampled from distinct sub-groups, or strata, of stocks in the index. The various strata imposed on the index should be mutually exclusive, exhaustive (sum to make up the whole index), and reflective of the characteristics and performance of the entire index. Common stratification techniques include industrial sector membership (such as sector membership defined by [[Global Industry Classification Standard|Global Industry Classification Standard (GICS)]]), equity style characteristics, and country affiliation. Sampling within each strata could be based on minimum market-cap criteria, or other criteria that mimics the weighting scheme of the index.

'''Optimization sampling''' in index investing means that managers hold a sub-set of securities generated from an optimization process that minimizes the index tracking error of a portfolio subject to constraints. These sub-sets of securities do not have to adhere to common stock sub-groups. Common constraints include the number of securities, market-cap limits, stock liquidity, and stock lot size.

Globally diversified portfolios of index funds are used by investment advisors who invest passively for their clients based on the principle that underperforming markets will be balanced by other markets that outperform.  A [[Loring Ward]] report in Advisor Perspectives showed how international diversification worked over the 10-year period from 2000–2010, with the Morgan Stanley Capital Index for emerging markets generating ten-year returns of 154% balancing the [[S&P 500]] index, which declined 9.1% over the same period – a historically rare event.<ref name=nine/> The report noted that passive portfolios diversified in international asset classes generate more stable returns, particularly if rebalanced regularly.<ref name=nine/>

[[State Street Global Advisors]] has long engaged companies on issues of [[corporate governance]]. Passive managers can vote against a [[board of directors]] using a large number of shares. Being forced to own stock on certain companies by the funds' charters, State Street pressures about principles of diversity, including [[gender diversity]].<ref name="Atlantic">[https://www.theatlantic.com/business/archive/2017/03/fearless-girl-wall-street/519393/ The Backstory Behind That 'Fearless Girl' Statue on Wall Street], [[Bethany McLean]], Mar 13, 2017, [[The Atlantic]].</ref>

The [[Bank of America]] estimated in 2017 that 37 percent of the value of U.S. funds (not including privately held assets) were in passive investments such as index funds and index ETFs. The same year, BlackRock estimated that 17.5 percent of the global stock market was managed passively; in contrast, 25.6 percent was managed by active funds or institutional accounts, and 57 percent was privately held and presumably does not track an index.<ref>{{cite news |title=Less than 18 percent of global stocks owned by index investors: BlackRock |url=https://www.reuters.com/article/us-funds-blackrock-passive/less-than-18-percent-of-global-stocks-owned-by-index-investors-blackrock-idUSKCN1C82TE |access-date=18 December 2018 |work=Reuters |date=3 October 2017 |language=en}}</ref> Similarly, Vanguard stated in 2018 that index funds own "15% of the value of all global equities".<ref>{{cite news |last1=Sheetz |first1=Michael |title=Gundlach says passive investing has reached 'mania' status |url=https://www.cnbc.com/2018/12/17/gundlach-says-passive-investing-has-reached-mania-status.html |access-date=18 December 2018 |work=www.cnbc.com |date=17 December 2018}}</ref>