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STRUCTURAL CHARACTERISTICS
ETF Holdings and Transparency |
ETF Holdings and Transparency PDF |
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Understanding Changes to ETF Holdings
Most ETFs closely follow their chosen underlying index.
However, where changes are made to an index by the index
owner, changes must also be made to the corresponding ETF.
The components of an index typically change with certain
types of corporate actions, including company mergers,
where one of the merger partners is absorbed into the other
with one company surviving, or when a public company is
taken private; where bankruptcy forces a publicly traded
company to completely liquidate and cease trading; or when
a division of a company is spun off into a separate publicly
traded company that may or may not then become a new
component of the index.
Certain corporate actions, such as regular or reverse stock
splits, may also force the index proprietor to increase or
decrease a company’s weighting in the index as appropriate.
An index provider may reconstitute the component companies
of its index for other reasons, for example where a company’s
core business has dramatically shifted into another industry.
In addition, indices may be periodically rebalanced or
reallocated to constituent companies to keep the index on
track with its mission of tracking a particular sector, industry
or other market benchmark. Index sponsors may also choose
to replace one constituent company for another for a variety
of reasons.
Although an ETF sponsor will generally follow changes made
to the index it mirrors, those who employ a sampling (versus
exact replication) strategy may not make all index changes
or may overweight or underweight individual component
companies to achieve a more desirable exposure.
Keep in mind that ETF providers will not, on their own,
ordinarily add or delete a component company unless it is
proactively added or deleted from the underlying index.
With fundamental indices, component allocations in the
index are weighted based on fundamental factors—such as
sales, cash flow, book value and dividends.
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This information is subject to change at any time and should not be construed as a recommendation of any specific security
or strategy.
This information does not constitute tax advice. Please consult your tax advisor and/or state and local tax offices for more
complete information.
Securities are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks,
including the possible loss of the principal amount invested.
RydexShares™ are distributed by Rydex Distributors, Inc., an affiliate of Rydex Investments.
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