What if.....California secedes from the US?

Let’s do a hypothetical scenario analysis. Obviously the possibilities of this really happening are quite remote, but I want to use this scenario to better understand how ETF works.

VTI is defined as followinf the CRSP U.S. Total Market Index
Primary, aka
“Nearly 4,000 constituents across mega, large, small and micro capitalizations, representing nearly 100% of the U.S. investable equity market, comprise the CRSP US Total Market Index.”

Does anybody know what would be the most expected situation for instance for the Apple stock if California says “fuck it” and become is own nation? Would Apple still be part of VTI because quoted on the NYSE? Or the index provider will have to sell it because no longer “US”? Or are they going to change the definition as “north american countries” or something similar? Wonder if anybody has found any literature or article on possible outcomes.

I’m heavily invested in VTI - and I’m wondering if switching to a world index (such as VT) wouldn’t be the smartest choice, since in a world index, california secession wouldn’t matter and Apple would stay in the index no matter what.

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No need to be too theoretical:


I see SPOT in many ETFs on US stocks, including indexing with Russell indices and “Goldman Sachs MarketBeta U.S. Equity ETF” (Solactive), “Vanguard ESG U.S. Stock ETF” (FTSE).

But also in “Avantis Responsible International Equity ETF”, “Invesco RAFI Strategic Developed ex-US ETF”, “SPDR Portfolio Developed World ex-US ETF”, funnily enough “Global X S&P Catholic Values Developed ex-U.S. ETF”.

And not in VTI, ITOT or ETFs on MSCI indices. Though for MSCI USA it could be just too small.

  1. There is kind of (but not exactly) precedent for what could happen in the UK leaving the EU. There are EU companies listed on UK exchanges and (less so) UK companies that were listed on European exchanges. There are also American companies listed in the US that are headquartered elsewhere.

  2. The fund currently includes companies domiciled outside of the U.S. (Linde, Accenture, etc.)

  3. The exact outcome however should - at least over the short term - be determined by the index provider’s methodology. Which does make concessions for companies not incorporated in the U.S. that are still considered U.S. companies. To my understanding, Apple would most probably fall under the scope of U.S. companies even if California were to leave the U.S.

  4. The index methodology also leaves room for companies being included based on committee review.

  5. Don’t forget that fund providers may change (and have done so) their choice of index for a fund.

  6. What you didn’t address yet is the legality - and practical feasibility - of a state’s secession from the U.S. I am very sure that California will not be allowed to leave the U.S., as won’t be Texas. For legal reasons as well as for a host of geopolitical and strategic reasons. Just think about all the vital technology and software that gets developed there, including for military use. Washington would never give that up and, if necessary, go to war about it.

:point_right: California’s independence will not be recognised and the company will continue to be included in U.S. indices.

Best case:
A formal secession of California will either be disregarded and/or the company stay included.
It’ll still create lots of turmoil in the economy/markets, which is why you should own none of these funds.

Worst case:
A formal secession with concrete steps of establishing its own country will spark a civil war.
In which case, again, you should own none of these products.


Besides the fact that this is very improbable. Both that event and the resulting index change would take time, so you’d anyway have the time to adjust.

So there might be reason to prefer VT, this isn’t one.


all very sensible answers. It does take time and probably they will have to announce any underlying change to the index methodology beforehand, right? At least for big movement like dropping apple. Is not like they can simply take it away from one day to the other, and vanguard would react immediately and not give you time, correct? Not sure how these changes on the index consitutent are communicated etc.

It’s very slow, just see how the China index changes are being rolled out.

In this (very hypothetical) scenario, there would likely be an exodus of companies from California to the US, which is generally their main market. Unless of course, the US does not impose any trade tariffs or they form some kind of economic union, but that is pretty much what the US already is.

It is also likely that companies would continue to trade on large, established stock exchanges, even if these are in a foreign country. All signs point towards a greater consolidation of stock exchanges rather than localization.

That was clear to me. I did not expect Apple to go out of New York. I was discussing Index Inclusion, not stock exchange location.
By definition a US index should only have US companies, but as San_Francisco highligted above in point 3, there are concessions.