Seeking to replicate the performance of an index by trading a basket of stocks/futures/options is not active management.
For instance, when an institutional investor gives SPDR say, $300,000,000 for a million shares of SPY, the fund goes out at purchases the underlying stocks in proportions that match the composition of the S&P 500, and then issues the SPY shares and holds the underlying and dividend payments in trust. SPDR does not have the option to choose the shares, they purchase a basket that replicates the S&P 500.
This is passive management, there is no one actively picking stocks, and when to buy/sell them.
I will assume your interest is genuine, here are links to the documents explaining the methodology behind the various S&P[0] and DJ indices[1]. I'm sure you can find documents for /RUT and IWM (Russell 2000), as well as /NQ and QQQ (Nasdaq 100) if you would like to see those as well.
The point, with which I agree, is that it's still active, just much less so. It's a bit pedantic, but assuming ETFs are passive by definition could get people crushed when these themed tickers get outflows.
I'm not claiming all ETFs are passive by definition, or without risk.
ETFs do have additional liquidity risk that mutual funds lack. If liquidity is lacking, it could lead to the bid falling below NAV, potentially quite significantly, and investors who chose to sell at that point in time would be losing additional money.
Mutual fund sales are processed at NAV at the end of the market day when the sale takes place, which ensures you will receive the NAV when you sell.
ETFs allow more flexibility, with the drawback of possibly trading below NAV or above NAV, which can be good or bad depending on if you are buying or selling.
If the price of the ETF falls too far below NAV, big traders will scoop up the ETF shares to redeem for the discounted underlying stocks as an arbitrage play, bringing the ETF's price closer to the NAV.
For instance, when an institutional investor gives SPDR say, $300,000,000 for a million shares of SPY, the fund goes out at purchases the underlying stocks in proportions that match the composition of the S&P 500, and then issues the SPY shares and holds the underlying and dividend payments in trust. SPDR does not have the option to choose the shares, they purchase a basket that replicates the S&P 500.
This is passive management, there is no one actively picking stocks, and when to buy/sell them.