One of my (many) pet peeves is when people offhandedly say, “Just buy an index fund.” I get the point, and I agree with it: Index funds are a great way to invest, much better than the old-school method of active investing.

That said, there are thousands of index funds, and the rules that govern the indexes often create very different portfolios with very different performance.

The largest tech-sector ETF is up 6.3 percent this year, but the second largest is up 12.3 percent. Some of that discrepancy is due to the short time horizon—over the last decade, the results have been much closer.

However, much of the difference is due to the different rules for creating the index.

Earlier this year, the largest tech-sector ETF rebalanced, and the changes were dramatic. The largest stock in the fund was largely unchanged at 22.1 percent on June 17th and 22.7 percent on June 24th.

The second largest holding, however, dropped from 22.1 percent of the fund to 4.5 percent, and the third largest holding rose from 5.9 percent to 19.8 percent. That’s a one-week period during which the two largest positions massively flipped.

The underlying stock values mostly stayed the same; the big moves came from dogmatic adherence to the index creator’s rulebook. Less than three months later, the index creator announced that they were changing the rulebook.

I should note that this isn’t necessarily the fault of the people who made the index because they wrote their rules to comply with regulations.

Decades ago, regulators sensibly wanted to create guardrails around funds in the old days of active management. They had two basic rules. First, no single stock could be 25 percent of the fund. Second, the stocks that were more than five percent of the fund couldn’t add up to more than 50 percent of the fund.

The three largest tech stocks account for 63.3 percent of the tech index, which violates the second rule outlined above. The rebalancing referenced above allowed the index fund to stay in the clear with the regulators, but it didn’t make much sense because the index rules were written before the current market concentration.

The new rulebook will keep regulators happy and result in less dramatic changes to the holdings at rebalancing time. However, as markets evolve, the new rules might not make sense, and index fund-makers will have to change their rulebooks again.

Investors need to know what they own and why they own it. ‘Just buying an index fund’ doesn’t absolve anyone from doing their homework. Of course, we keep close track of everything on our Approved List and many, many other securities clients own. The index fund industry keeps us plenty busy with hundreds, if not thousands, of new funds each year.