ETF’s track index funds and invest in index fund stocks with given %. Index gets reshuffle periodically. If a new stock make place in the index fund managers would withdraw all money from the exited stock and invest that amount in new one?
Yes, if stock exits the index, ETF fund manager will sell the stock completely
Investment in new stock will depend on weightage of new stock in index. So all the money from selling stock may or may not be invested in new stock.
Typically, when index rebalances, some stocks move out, some are added and also weights of most stock in index changes. Fund manager then will align his investments in line with new weightages.