Markets don’t move in a straight line. So when regimes shift — whether due to inflation spikes, Bank of Canada policy changes, or sector rotations — those changes ripple through everything from individual stocks to entire ETFs. One of the clearest places to observe these shifts? During index rebalances, especially in value-focused ETFs.
Twice a year, major value indexes, like the S&P/TSX Composite Value Index*, undergo their scheduled rebalances. This process removes companies that no longer meet the value criteria and adds new ones that do. ETFs that track these indexes tend to adjust their holdings accordingly, often moving significant amounts of capital.
Value Isn’t Fixed And Neither Are the Flows
One of the biggest assumptions about value investing is that it’s static. In reality, value looks different depending on the market backdrop.
In a low-interest, growth-driven market, value tends to favor defensive sectors like consumer staples and utilities. In contrast, during rising rates and inflationary periods, value tends to shift toward cyclicals — think energy, financials, and materials.
Passive ETFs, especially factor ETFs tied to traditional metrics like price-to-book or price-to-earnings, often lag these shifts. They rebalance only after the market has already priced in the change. That creates windows of opportunity for firms that watch flows closely.
Reading the Rebalance
Watching index rebalances isn’t just an academic exercise. It offers investors a live view of how the market redefines value.
For example, the CI U.S. Enhanced Value Index ETF, which tracks the VettaFi US Enhanced Value Index rebalances semi-annually. Weights are assigned using both float-adjusted market cap and a proprietary value score, with limits on sector and individual stock exposures. CVLU must update its holdings to reflect these changes, often triggering meaningful portfolio shifts to stay aligned with the index strategy.
For Canadian investors, keeping an eye on index rebalances isn’t just about watching the roster of stocks change — it’s about spotting clues on where the market might be headed next. When things get unsettled, these rebalances may tell a bigger story: how the market’s definition of value is shifting. And those shifts? They can open the door to real opportunities worth paying attention to.
Disclaimer:
_Commissions, trailing commissions, management fees and expenses all may be associated with an investment in mutual funds and exchange-traded funds (ETFs). Please read the prospectus before investing. Important information about mutual funds and ETFs is contained in their respective prospectus. Mutual funds and ETFs are not guaranteed; their values change frequently, and past performance may not be repeated. You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them. _
Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.
VettaFi LLC (“VettaFi”) is the index provider for CVLU and CI Global Asset Management, for which it receives an index licensing fee. However, CVLU and CI Global Asset Management (and its investment products) are not issued, sponsored, endorsed, or sold by VettaFi or its affiliates, and VettaFi and its affiliates have no obligation or liability in connection with the issuance, administration, marketing, or trading of CVLU or any products of CI Global Asset Management. VettaFi LLC is an affiliate of TMX Group Limited.
VettaFi makes no representation or warranty, express or implied, to any member of the public regarding the advisability of investing in securities generally or in the VettaFi Indexes particularly or the ability of the VettaFi Indexes to track general market performance.
CI Global Asset Management’s commentary is intended for informational purposes only, it does not constitute any investment advice, or an endorsement or recommendation of any entity or security discussed or provided by CI Global Asset Management.
The S&P/TSX Composite Value Index (the “Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and TSX Inc. (“TSX”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and TSX® is a registered trademark of TSX. SPDJI, Dow Jones, S&P, their respective affiliates and TSX does not sponsor, endorse, sell or promote any products based on the Index and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions or interruptions of the Index or any data related thereto.