As a general principle, exchange funds do not sell the stocks you contribute. Instead, a fund carefully selects stocks from potential investors and then pools them into a single fund to achieve diversification. The contributed stocks are held and managed collectively, allowing each investor to own a portion of the diversified pool of assets indirectly.
This approach is fundamental to the concept of an exchange fund, as it allows investors to diversify their investment portfolios without triggering immediate capital gains taxes that would occur if the contributed stocks were sold. The portfolio is adjusted at the edges through various portfolio management techniques, such as additional investor contributions, synthetic exposures, and more, but generally not through the sale of contributed stocks.