It also involves rebalancing the weights of each stock to account for stock splits, dividends, and change in market capitalization or the float number (the amount of shares on the public markets).
> It also involves rebalancing the weights of each stock to account for stock splits,
No.
> dividends,
No.
> and change in market capitalization
No (at least for the changes related to price movements and not share count).
> or the float number (the amount of shares on the public markets).
The last one is the only valid concern. In the end turnover is quite low (a few percentage points per year, including additions/removals and adjustments, if I remember correctly).
Regular dividends are not on that list (only "special" dividends result in adjustments). And market cap changes are only relevant as far as the "change in outstanding shares" is concerned, which is not usually the main driver for market cap changes.
The problems for an index are a little different than an ETF following an index. If you have to allocate capital behind the index, you have to do some more adjustments and the expense ratio is going to reflect that.
