# ETF rebalancing: do I pay fees?

Consider an ETF on a broad index such as S&P500. I know that the ETF is rebalanced usually quarterly by providers such as BlackRock or MSCI. My question is: if I am long that ETF, do I incur in some costs when it is rebalanced (such as transaction costs in form of fees or whatsoever)? I could not find this information anywhere

I am trying to understand the following. Say we have two indices, A and B. On each one an ETF is traded, ETF_A and ETF_B respectively. Assume that all managing costs for the ETFs are the same. If index A has much higher turnover than index B such that the rebalancing of ETF_A is "heavier" than ETF_B, would this make the periodic ETF fee for ETF_A higher than the one for ETF_B? Or would it not be visible to the investor has the periodic fee is a "catchall" fee?

You pay a periodic fee ("expense ratio") for holding an ETF that encompasses all costs - transactions costs, management costs, etc. You do not pay additional costs purely for rebalancing within the ETF.

• Ok so would you agree saying that the actual rebalancing of the ETF does not impact your costs? Or could it actually impact them, as it would increase the expense ratio but you would not know this is due to rebalancing as the expense ratio is a catchall measure? To be more specific about what I am trying to understand, I added a couple of more information in the question above Commented Apr 28, 2023 at 16:42
• The expense ratio will capture all of that and should be stable. So yes if another fund has more turnover that should be reflected in a higher expense ratio. Commented Apr 28, 2023 at 18:00

Say we have two indices, A and B. On each one an ETF is traded, ETF_A and ETF_B respectively.

Two indexes each with an ETF

Assume that all managing costs for the ETFs are the same.

To do that lets say the company managing each ETF is the same that way the base rate is the same. This covers their fixed costs of running a passive fund that follows an index that was created by somebody else.

If index A has much higher turnover than index B such that the rebalancing of ETF_A is "heavier" than ETF_B,

That mean that index A has more buying and selling internal transactions to match the changes in the index. These transactions are those that can't be covered by the normal flow of money into and out of the fund.

would this make the periodic ETF fee for ETF_A higher than the one for ETF_B? Or would it not be visible to the investor has the periodic fee is a "catchall" fee?

Yes the fee for fund A will be higher. The company running Fund A doesn't sett the fund expense rate for all their funds the same. They are set according to what their costs are. Active vs passive, and the changes required due to changes in the index make a difference.

It might be true if that an investor doesn't notice the higher expenses if Index A jumps 20% for the year, but Index B loses 10% for the year. They will see on their annual statement that fund A gained 19% after expenses, but fund B lost 10.1% after expenses.

• very good clarification, thank you Commented May 1, 2023 at 13:31