When a commercial index is revised, some securities may be added to its list of constituents while others may be deleted in a process known as reconstitution. The goal of reconstitution is to periodically rebalance the index to account for historical changes in the market and their constituents during the prior period. Index fund managers, who track an underlying index, may be forced to buy the additions and sell the deletions, with no discretion regarding the securities they hold and when to change their relative weights. They’re generally forced to do this in order to minimize tracking error relative to the index, which may result in sub optimal portfolios and increased costs.
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Should I be worried by the recent banking turmoil’s impact on the stock market?
March 2023 was a significant month for banks in the US and globally. On March 10th, Silicon Valley Bank (SIVB) succumbed to a phenomenon called
May 5, 2023
