The reason this happens is because of strict ruling on how index funds must track the index (as the article mentions). There is no way around this unless...
You loosen the requirements on how strict the index fund must track. Portfolio managers are incentived to trade smartly if they are ALLOWED to. This is why bulk trades are usually "random" to avoid front-running.
So a solution here is create a competitor to Vanguard who has loose, yet well defined rules that define an index fund and how closely it must track an index. That's it.
EDIT: Others are commenting on index funds have to redefine themselves and add/subtract funds. But that is only the index, not the cause of the price movements. That is looking at it backwards. You need to look towards those moving the prices, like Vanguard, to find a solution.
You loosen the requirements on how strict the index fund must track. Portfolio managers are incentived to trade smartly if they are ALLOWED to. This is why bulk trades are usually "random" to avoid front-running.
So a solution here is create a competitor to Vanguard who has loose, yet well defined rules that define an index fund and how closely it must track an index. That's it.
EDIT: Others are commenting on index funds have to redefine themselves and add/subtract funds. But that is only the index, not the cause of the price movements. That is looking at it backwards. You need to look towards those moving the prices, like Vanguard, to find a solution.