What it is
Index rebalancing is the process by which index providers, such as S&P Dow Jones Indices or FTSE Russell, periodically adjust the composition and weighting of the securities within an index. This is done to ensure the index accurately reflects its stated investment strategy or market segment, such as large-cap growth or small-cap value. Rebalancing can involve adding new companies, removing existing ones, or changing the proportion of each security to maintain diversification or market representation.
Rebalancing events, particularly for major indices like the S&P 500 or Russell 2000, can significantly impact the prices of affected stocks. Funds that track these indices, such as exchange-traded funds (ETFs) and mutual funds, must buy or sell shares of companies being added or removed, or adjust their holdings to match new weightings. This can lead to increased trading volume and volatility for those specific stocks around the rebalancing date, which typically occurs quarterly or annually.
Why it matters
Index rebalancing can create temporary price movements in affected stocks, offering trading opportunities or impacting your fund's holdings.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice