Dimensional's Kaitlin Hendrix: Counting the cost of index rebalancing

Reconstitutions can hurt returns

In the past few weeks, the main index providers, including FTSE Russell, S&P and MSCI, rebalanced many of their most popular indices.

Trillions of dollars of equities are sold and bought at the behest of these periodic reconstitutions. Because index funds primarily seek to match the performance of an index, rather than increase returns to investors, these events can hurt returns. IW 30: Meet the asset management gamechangers of the next 30 years Minimising tracking error leads to certain constraints and costs that occur in portfolio design, portfolio management and trading. What is more, they are all but invisible to investors because they are unlikely to be reflected in funds' expense ratios. Let us look at an e...