You May Now Own a Piece of Trump Media and Not Even Know It

CNN New York —

If you have money in the market, you may own a small share of Trump Media without even knowing it.

Trump Media & Technology is now included in two major U.S. stock indices: the Russell 1000 Index of large-cap stocks and the Russell 3000 Index. And several popular passive funds, namely index funds and exchange-traded funds (ETFs), automatically buy all the stocks that are included in these Russell indices.

Trump Media (DJT), the owner of the conservative social media platform Truth Social, announced Monday that it is joining the Russell family. The company, majority-owned by former President Donald Trump, makes no money and generates very little revenue.

As a result, countless retail investors will now own a share of Trump Media.

Passive investing in ETFs and other funds has grown considerably over the past 20 years because it allows investors to diversify their holdings at a lower cost and avoid the risk of focusing on individual stocks.

Some large funds track the investment performance of the Russell 1000. These include ETFs like the iShares Russell 1000 ETF (IWB), with nearly $38 billion in assets, and the Vanguard Russell 1000 ETF (VONE), with $5 billion, as well as some mutual funds that are rolled into 401(k) plans and other retirement accounts. These include the $14 billion iShares Russell 3000 ETF (IWV) and the $2.5 billion Vanguard Russell 3000 ETF (VTHR).

People could own a piece of this company whether they know it or not and whether they want to or not, said Sam Stovall, chief investment strategist at CFRA Research.

That said, Trump Media would represent only a small portion of the funds that track the Russell index, dwarfed by holdings from larger companies including Microsoft, Nvidia and Apple.

However, Stovall said the Trump Media situation highlights one of the drawbacks of passive investing: Some funds mimic indexes that automatically add stocks based on rules, not a careful assessment of the company's fundamental strengths and weaknesses.

You can end up with real dogs that I don't think are really worth owning. The debris gets swept away with the debris, Stovall said.

In this case, the Russell 3000 is comprised of the 3,000 largest U.S. stocks. During annual updates, some stocks are added, not necessarily because of their earnings potential or the quality of their products, but because they are large enough to qualify.

Investors looking to adopt a strategy that reflects the overall performance of U.S. stocks can confidently choose the Russell 3000, knowing that there is no subjective inclusion or exclusion of stocks, according to the FTSE Russell website.

Inclusion in the Russell 3000 automatically qualifies a stock for entry into either the small-cap Russell 2000 or the larger-cap Russell 1000.

Other indices include subjective and more analytical criteria. For example, S&P Global says it invites companies to join its S&P MidCap 400 index only after reviewing their balance sheets and financial viability.

Experts have expressed serious concerns about Trump Media, which is valued at nearly $6 billion, even though the company generated less than $1 million in revenue in each of the last two quarters. Its main product, Truth Social, is still a tiny player in the social media space.

Trump Media has often been compared to a meme stock that trades based on momentum and hype, not fundamentals.

Reid Hoffman, co-founder of LinkedIn and a vocal critic of former President Donald Trump, estimates that Trump Media is actually worth only $40 million.

Social figures are absurdly outside the scope of normal business, Hoffman told CNN.

Aniket Ullal, head of ETF data and analytics at CFRA Research, notes that regulators require all indexed ETFs to publish their portfolio holdings daily.

“There is transparency in holdings for investors who want it,” Ullal said.

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