How to Utilize Anticipated ETF Rebalances

For many investors, passive investing can be a no-brainer and is suggested by many, especially those who think that the walk is random. However, it does not mean that the passive investors do not trade — the ETFs trade instead of them. The indexes that are being tracked are rebalanced to account for changes in the market cap, mergers, delistings, or IPOs. The novel research shows that it matters how the ETFs trade. Even though the differences are not that big, for a long-term horizon, the differences compound. For active traders, the paper shows that the rebalancing of the ETFs could be utilized by trading in advance.

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