Index rebalancing
Also known as: index rebalance
Index rebalancing is the periodic process of adjusting the weightings of the companies already inside an index, without necessarily changing which companies belong to it. As prices move at different rates, a 's actual weights drift away from what the methodology intends, and rebalancing resets them.
Rebalancing is distinct from reconstitution, which is when companies are added to or removed from the index entirely. An index can rebalance its existing members' weights quarterly while only reconstituting its actual membership once a year.
Because are built to mirror their benchmark exactly, a scheduled rebalancing date creates a predictable spike in , as every fund tracking the index buys and sells the same in the same direction at roughly the same time to match the new weights. Traders sometimes try to anticipate this flow ahead of the actual rebalancing date.