Additionally, dividends and interest accrued would be used to add additional shares of the underlying securities.
Lastly, if an index rebalances or reconstitutes its holdings, ETFs will have to buy and sell securities to reflect the necessary changes. A debt downgrade or debt maturation would cause an index change for bond funds. In equity ETFs, corporate mergers and changing market conditions could affect an ETF’s holdings.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.