Suppose an index is changed in so far as Company A is removed and Company B is added.
- Are these changes reflected immediately in an ETF reflecting said index?
I suppose that when an AP creates ETF "shares" by adding a basket of securities, this happens with the new constellation, i. e. with B and without A.
- However, when an AP "destroys" (redeems?) ETF "shares", does this happen in the old constellation? That would make sense because it would help the transition from the old to the new constellation.
Apart from the APs adding or removing baskets of constituent shares,
- can and will the ETF manager (or the AP?) buy and sell shares in order to get close to the new index constellation?
In this case, I suppose large amounts of A will be sold and large amounts of B will be bought. This will surely affect the price of these stocks.
- Is it possible to say how much the impact will be on each side?
- Or will the exchange be slowly over several days and the impact will be low?
- Will, in this case, the ETF (or the AP) act as a kind of "market maker" for these stocks?
EDIT: While further thinking about this, I think that remaining stocks of A as well as "missing" stocks of B might as well contribute to the tracking error. But I think in the long run, these mismatches are probably eliminated in a slow, careful way.