Index funds - see not post:
Non-index funds - most have not yet bought TSLA since entry. Place to discuss when they will purchase.
Non-index funds - most have not yet bought TSLA since entry. Place to discuss when they will purchase.
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S&P500 rebalancing and non-index buying/selling
- Thread starter Buckminster
- Start date
bballshinobi
Member
Why would a S&P 500 ETF need to sell TSLA in order to rebalance? The stock price movement automatically adjusts the stock's weight inside the index.
Surely that only applies if they all move in sync - if all the others go up in price, and TSLA goes down, then that does actually change the balance
Say an index has only two stocks for $10 each - they’re each 50% of the index.
If one goes to $5 and the other goes to $15, one stock is now 25% of the index and the other is 75%. No need to sell anything to rebalance since the float hasn’t changed.
But @generalenthu expects they’ll actually need to buy to rebalance because Elon’s recent sale increased the float.
If one goes to $5 and the other goes to $15, one stock is now 25% of the index and the other is 75%. No need to sell anything to rebalance since the float hasn’t changed.
But @generalenthu expects they’ll actually need to buy to rebalance because Elon’s recent sale increased the float.
@Artful Dodger raises a valid point. I tried to find data to make a worthwhile response, but failed.
Depending on how funds add to their porfolio, they may adjust automatically (live weight calculations) or incur a step change (use of old weights in terms of dollars).
IWF and share count changes would result in shifts either way.
Depending on how funds add to their porfolio, they may adjust automatically (live weight calculations) or incur a step change (use of old weights in terms of dollars).
IWF and share count changes would result in shifts either way.
I feel talky...
Here's the thing, weights are individual floats versus sum of all floats. Tesla is currently 1ish percent down from 2 ish. So in terms of total funds it moved the denominator 1%, not a lot so let's ignore that for the moment.
Tesla dropping in half means its weight is half. However, its value was also halved. So it effectively self-reballanced since number of shares in the funds didn't change(ignoring the 1% denominator shift).
BUT! This assumes funds didn't buy TSLA at the old weight this whole time, otherwise they would effectively be buying 4x the shares they should have. Twice the weight * twice the shares per dollar.
Given this would create huge corrections every rebalancing time and the fact that IWFs and stock counts and prices are all known, I tend to think they actively act on current weights so the action is all due to updated IWFs, share counts, and the total (denominator) which is going to drop (along with constituents) due to macro.
S&P 500 Companies - S&P 500 Index Components by Market Cap
Here's the thing, weights are individual floats versus sum of all floats. Tesla is currently 1ish percent down from 2 ish. So in terms of total funds it moved the denominator 1%, not a lot so let's ignore that for the moment.
Tesla dropping in half means its weight is half. However, its value was also halved. So it effectively self-reballanced since number of shares in the funds didn't change(ignoring the 1% denominator shift).
BUT! This assumes funds didn't buy TSLA at the old weight this whole time, otherwise they would effectively be buying 4x the shares they should have. Twice the weight * twice the shares per dollar.
Given this would create huge corrections every rebalancing time and the fact that IWFs and stock counts and prices are all known, I tend to think they actively act on current weights so the action is all due to updated IWFs, share counts, and the total (denominator) which is going to drop (along with constituents) due to macro.
S&P 500 Companies - S&P 500 Index Components by Market Cap
As an alternative to your hypothetical example, here's the personal opinion of someone with decades of experience on Wall St.
Alexandra Merz 
on Twitter: "Just a quick reminder: Volume will be crazy today and tomorrow. All ETFs & funds indexed on the S&P 500 need to rebalance quarterly, and now have to sell $TSLA. TSLA stock lost 45% in the last 3 months, S&P only 5%. It is what it is." / TwitterAnd here's a random website that says the S&P 500 actively adjust to stock price changes How Is the S&P 500 Calculated?
Mongo confused on your meaning, Rivian isn't in the S&P500...
Heck of a closing cross though...
Artful Dodger
"Neko no me"
Indeed, there's high volume EVERYWHERE. This being a negative correlation to the rebalance event in this case (hidden variable indicated).
Cheers!
So index funds will sell a bit due to the above. General rebalancing doesn't have much affect?Rebalancing issues this week? h/t @Papafox for the link. Note also that the largest S&P 500 index rebalance of the year is also on Fri, Dec 15 (typically at the Close)
Non-index funds won't need to sell because they don't own enough TSLA anyway.
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