S&P DJI delays quarterly index rebalance amid market chaos

Mar 17th, 2020 | By | Category: ETF and Index News

S&P Dow Jones Indices (S&P DJI) has announced that the quarterly rebalance of its S&P and Dow Jones equity indices, due to take place on 20 March, has been postponed due to the severe market disruption caused by the coronavirus.

S&P DJI delays quarterly index rebalance amid market chaos

The 20 March quarterly rebalance for the S&P and Dow Jones equity indices has been delayed.

In a note to clients, the firm said the decision was taken so as to improve the governing of their indices during this period of extreme global market volatility, market-wide circuit breaker events, and exchange closures.

There will be three key implications for affected indices due to the delay.

Firstly, constituent weight updates will be delayed as the process of adjusting quarterly shares outstanding and investable weight factors will be postponed.

Secondly, the removal of constituents that are no longer eligible for inclusion, as well as the addition of new replacement constituents, will also be postponed.

S&P DJI has not disclosed a date when the rebalance will be enacted but has noted it will continue to monitor global markets and will issue further guidance to clients as soon as possible.

The final implication for affected indices is that capping constraints that enable consistency with diversification requirements will be applied by the end of March.

ETF impact

The delay will impact ETFs tracking the firm’s flagship equity indices which most notably include the S&P 500 and Dow Jones Industrial Average.

These ETFs include the three major US-listed S&P 500 ETFs, provided by SSGA, BlackRock, and Vanguard, which collectively house nearly $600 billion in assets under management, as well as the $20bn SPDR Dow Jones Industrial Average ETF (DIA US). Europe also has its share of sizable ETFs tracking these key indices.

Beyond these funds, numerous ETFs tracking equal weight, smart beta, and factor-based variations of the S&P 500 and DJIA, as well as sector-specific sub-indices will also be affected.

As the severity of the coronavirus’s economic impact has become clearer, stock markets have crashed and volatility has sky-rocketed – between 20 February and 16 March, the S&P 500 and DJIA are down 29.2% and 30.9% respectively.

Stocks from the energy, financial, industrial, consumer discretionary, and technology sectors have been hit the hardest, although the long-term impact on these companies and sectors is still unclear. Enacting an index rebalance now would remove many of these companies which, if their prospects subsequently improved, would be re-admitted in the following rebalance. ETFs linked to these indices would suffer an undesirable “sell-low, buy-high” scenario.

By delaying these indices’ quarterly rebalance, S&P DJI is seeking to reduce unnecessary turnover, thereby benefitting investors.

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