ETFs have many benefits, including their low expense ratio, being diversified, and they track market indices by just one fund. So do ETFs have any drawbacks? Coming Up with An Index is An "Active" Process For example, the S&P 500 index has to follow some rules when adding or removing stocks. According to Investopedia, to be eligible for S&P 500 index inclusion, a company should be a U.S. company, have a market capitalization of at least USD 13.8 billion, be highly liquid, have a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive. When an index follow a certain rule to adjust its component stocks and an passive ETF has to follow the same rule in order to track it, the ETF would act just like an active fund that rigorously follows some investment strategy. There might be Unnecessary Cost That an ETF blindly follows a set investment