Do ETFs Split and What You Need to Know

ETFs can indeed split, but it's not a common occurrence. They usually don't split like stocks do, as they're designed to track an index or a basket of assets.

The reason ETFs don't split as often is that they don't have a fixed number of shares outstanding like stocks do. This is because ETFs are created and redeemed in kind, meaning new shares are created or existing shares are redeemed to match the changing value of the underlying assets.

ETFs can split if the underlying index or assets are adjusted, but this is rare. For example, if an ETF tracks the S&P 500 and the S&P 500 index is adjusted to include new stocks, the ETF might need to split to maintain its tracking ratio.

For your interest: Blackrock New Etfs

A stock split is a way for companies to adjust the number of shares they have outstanding, making their stock more accessible to a wider range of investors. This typically happens when a company's stock price is high, making it difficult for many investors to buy the standard trading unit of 100 shares.

You might like: Can You Buy Fractional Shares of Etfs at Fidelity

The number of shares increases, but the price of each share decreases, so the total value of the company's shares remains the same. Think of it like cutting a cake - cutting more pieces doesn't mean you have less cake, you just have smaller pieces.

For example, Apple split its stock 7 for 1 in June 2014, resulting in a new total of about 6 billion shares at a price of around $92 per share, up from 861 million shares at $645 per share. This split didn't change the total value of Apple's market cap, which remained at roughly $555 billion.

Recommended read: Value vs Growth Etfs

A stock split is a corporate action where a company divides its existing shares into a larger number of shares, usually to make the stock more affordable and attractive to investors.

The main purpose of a stock split is to increase the liquidity and trading volume of the stock, making it easier for small investors to buy and sell shares.

A stock split typically involves dividing each existing share into two or more shares, with the total value of the stock remaining the same.

For example, if a company has 100 shares outstanding and declares a 2-for-1 stock split, the number of outstanding shares would increase to 200, but the total value of the stock would remain the same.

Discover more: Ishares Msci Eafe Value Etf

There are two types of stock splits: conventional and reverse.

A conventional stock split occurs when a company divides its existing shares into more shares, increasing the number of shares but decreasing the price of each share, so the total value of the company's shares remains the same.

Think of it like cutting a cake: Cutting more pieces doesn't mean you have less cake—you just have smaller pieces.

A company typically splits its stock when the price of its shares is high, making it difficult for many investors to buy the standard trading unit of 100 shares.

Additional reading: When Did Etfs Begin

High prices can make it difficult for many investors to buy the standard trading unit of 100 shares, but a lower price allows more investors to buy the stock, potentially increasing its liquidity.

A reverse stock split is the opposite of a conventional stock split, where a company decreases its number of shares to increase the price of each share.

Companies often choose to enact a reverse stock split when shares fall below the minimum price of the exchange's listing requirements, which means they can't be traded on the exchange.

For instance, in July 2009, the American International Group, or AIG, reverse split its shares one for 20 to stabilize its stock price.

Take a look at this: Exchange Traded Funds Etfs Have Which of the following Features

ETFs split in a way that's similar to traditional stocks, but with a few key differences. They typically split their shares to maintain a consistent price.

For example, if an ETF's price is too high, the fund may split its shares to make them more affordable for investors. This can be done to attract more investors and increase trading volume.

ETFs usually split their shares on a specific date, which is determined by the fund's management team. This date is often announced in advance to give investors time to adjust their holdings.

When a fund's net asset value (NAV) exceeds a certain threshold, it triggers a split.

The threshold is typically set at $1 billion, but it can vary depending on the fund's specific rules.

The fund's manager must declare a split, which involves dividing the fund's shares by a certain ratio.

This ratio is usually 2-for-1 or 3-for-1, but it can be adjusted based on the fund's performance.

The fund's shares are then revalued at the new NAV, and the split is implemented.

If this caught your attention, see: Low Expense Ratio Etfs

Investors who hold shares of an ETF at the time of the split will receive additional shares.

For example, if an ETF with 100 million shares splits 2-for-1, an investor will receive two new shares for every one they already own.

Investors can expect the value of their shares to potentially decrease due to the increased supply of shares.

This is because the total value of the ETF remains the same, but the number of shares increases.

The split ratio will determine the number of new shares an investor receives.

A 2-for-1 split, for instance, means an investor gets two new shares for every one they already own.

Investors should be aware that splits do not affect the underlying assets of the ETF.

The split is simply a change in the number of shares outstanding.

Investors who sell their shares after the split date may be able to take advantage of the increased supply of shares.

They can potentially sell their shares at a higher price due to the increased demand for the new shares.

Reverse splits can be a way for companies to increase the price of their shares, such as when American International Group, or AIG, reverse split its shares one for 20 in July 2009 to stabilize its stock price.

A reverse split is the opposite of a conventional stock split, where a company decreases its number of shares to increase the price of each share. This can happen when shares fall below the minimum price of the exchange's listing requirements.

You might like: What Happens When a Stock Splits 3 to 1

Companies often choose to enact a reverse stock split to prevent being delisted, which means they can't be traded on the exchange. For instance, the ProShares Short VIX Short-Term Futures ETF will trade on a 1-for-4 basis after its reverse split, meaning investors who previously owned 400 shares will own 100 new shares at a higher price.

In the case of the ProShares Short VIX Short-Term Futures ETF, the reverse split should help get the share price closer to where it was before a big drop in February. The ultra volatility ETF, however, is down almost 20% year to date, despite benefiting from the same volatility spike that hurt its short ETF counterpart.

Suggestion: Proshares Oil Etf 3x