/biz/ - Business & Finance

this might be a retarded question but...where does the money in an index fund or ETF go?

do they actually hold everything? like when SPY says they have like 400 billion AUM do they literally just hold it all and only touch it to do creation/redemption?
or is this some bullshit like banks where they actively loan these shares out or something and aren't completely solvent

and if they rebalance and some company leaves the s&p500 does the fund manager just dump all of the shares of that underlying?