Measuring the Costs of Index Reconstitution: A 10-Year Perspective

By Kaitlin Hendrix, CFA, Asset Allocation Research Director and Vice President   |   Jerry Liu, PhD, Trading Research Director and Vice President   |   Trey Roberts, Senior Associate, Research

Measuring the Costs of Index Reconstitution: A 10-Year Perspective
View All Insights

Sep 17, 2024

Topic

Equity Investing Implementation
KEY TAKEAWAYS
  • Index-tracking funds seek to match an index’s performance. This goal may lead to constraints and implementation costs that hurt returns.
  • Our 10-year study identifies significant costs for index-tracking funds from demanding immediacy during index reconstitution events.
  • A better investment approach would be a daily process that spreads turnover across all trading days, avoiding the costs of demanding immediacy and allowing for a consistent focus on stocks with higher expected returns.

Measuring the Costs of Index Reconstitution: A 10-Year Perspective

View PDF