VEVE (Vanguard FTSE Developed World)

[OLTB]

Morning all

I'm after a bit of technical information - I hold the above ETF in my passive portfolio and Apple is currently the top holding by weight. I have looked through the prospectus to see when rebalances take place but can only see that the index rebalances quarterly whereas the ETF rebalances, 'from time to time' which sounds a little woolly.

Is anyone aware of when rebalancing takes place within the ETF, or is it as it states, just down to the manager's discretion?

Cheers, OLTB.

[syrio]

If you are thinking that the ETF has to rebalance because Apple is now the top holding by weight, then stop thinking that.

Otherwise "from time to time" sounds like a reasonable description to me. It isn't like they are going to have specific dates set, the ETF needs to track its index at all times, but for the most part rebalancing isn't necessary.

[colin]

I assume that as a capitalization weighted tracker it will only need to re balance to jettison companies which have become too small and replace them with new companies that have grown large enough to warrant inclusion, companies at the top will not be affected as the value of one company against another is left to free float as market values change.

[GeoffF100]

I assume that as a capitalization weighted tracker it will only need to re balance to jettison companies which have become too small and replace them with new companies that have grown large enough to warrant inclusion, companies at the top will not be affected as the value of one company against another is left to free float as market values change.

Companies also have rights issues. Companies can also return capital to shareholders. Privatisations can lead to large companies entering the index at any time. The index itself could change too. An emerging market might be reclassified as developed market, for example.

These problems are solved by buying or selling a little of the stocks that are unaffected, to enable the change to be made. For open ended funds, this can usually be accommodated by cash inflows and outflows to and from the fund. ETFs are effectively open ended funds as far as the market participants are concerned, and closed funds as far as retail investors are concerned.

[Hariseldon58]

ETFs ebb and flow in size and they publish daily (as I unde) what is required for a basket of shares to come in and out of the ETF. Vanguard will want to minimise tracking error and will no doubt have enormous expertise in doing so at minimal cost. It’s one thing we don’t have to worry about

[OLTB]

Thanks everyone - I was thinking of topping up as it's fallen quite a way and wasn't too sure of the mechanics of rebalancing. Now I'm clearer and the above explanations were very useful.

Thanks again, cheers, OLTB.

[colin]

Geoff100 wrote...Companies also have rights issues. Companies can also return capital to shareholders

Why should any of these result in an index tracking fund needing to buy or sell shares?

Privatisations can lead to large companies entering the index at any time. The index itself could change too. An emerging market might be reclassified as developed market, for example.

Yes but very infrequently and outside the concern expressed by the OP

[GeoffF100]

Geoff100 wrote...Companies also have rights issues. Companies can also return capital to shareholders

Why should any of these result in an index tracking fund needing to buy or sell shares?

If a company has a rights issue, the fund has to take up the rights to the same extent as the market. This requires cash, but a market weighted tracker is always fully invested in shares. If there are no investors entering or leaving the fund, the fund has to sell a fixed proportion of all the other shares to raise the cash to take up the rights issue. If there is an inflow of money to buy new units, it may be possible to use some of that to take up the rights issue.

A return of capital (not to be confused with a special dividend) is the same thing in reverse.