The Rebalancing Effects of ETFs

On March 8th, there was a rebalancing at the close for the SPDR S&P Dividend Fund (SDY) which caused excessive volume in some names. This particular ETF’s goal is to closely match the returns and characteristics of the S&P High Yield Dividend Aristocrats Index, which tracks the performance of publicly traded issuers that have historically made dividend payments. Specifically, the index is comprised of the 60 highest dividend yielding constitu­ents of the S&P Composite 1500® that have increased dividends every year for at least 25 consecutive years. Since there are only 60 names in the fund, a slight modification to such a small portfolio can create a ripple effect or increase volume substantially in the underlying names. The fund rebalances the 5th business day of every 3rd month (the next rebalancing will occur on June 7th). In case you wanted to check if your company is included, here is a link to the ETF and its holdings.

This happens to be a very specific example of the ways in which inclusion in an ETF can influence the trading of your stock. While you may not be included in this particular fund, this type of heightened activity can be experienced as a result of the funds that you are a part of, especially when they rebalance. If you ever notice some extra volume at the close without any clear explanation, knowing the funds that you are included in (particularly the smaller ones) and if they are rebalancing might be a good starting point.