Wouldn't that just incentive those people to always favor the items in that fund, therefore providing an advantage to anything that makes in on the fund?
Given two competitors in a market, what if the existing but inefficient one is in the fund but the new one that is trying to shake thing up and/or do a better job is not? You might see a lot more protectionism, and not just against companies of other nations, but against our own new best companies.
Yeah, I've always been a little sceptical of plans to limit their holdings. I think in some ways they actually worsen the incentives.
If you were limited to GM and Ford, would you want a Tesla or Rivian to exist? If you were limited to K-Mart, would you want Wal-Mart to exist? If you limited to Sears, would you want Lowes, Home Depot, and Best Buy to exist?
Basically any restriction that can be imagined would incentive various other bad behaviors that might actively be anticompetitive.
There's a huge difference between the occasional company getting the occasional boost when some individual lawmaker or a small group of them can finagle something good for a company compared to every single lawmaker being aligned and wanting certain companies that they all agree on to succeed over others purely because it's beneficial for them and not necessarily because the market views them as better or the general public benefits.
A free market is a system that's based on emergent behavior. As we see time and time again, even the best and most useful and narrowly focused regulations that are beneficial when first implemented need constant review to make sure they aren't later doing more harm than good. Carving out a big chunk of the market as likely to get special behavior regardless of the normal inputs and outputs could outright be disastrous, IMO.
Given two competitors in a market, what if the existing but inefficient one is in the fund but the new one that is trying to shake thing up and/or do a better job is not? You might see a lot more protectionism, and not just against companies of other nations, but against our own new best companies.