FTSE 100 Rebalancing: How and When It Happens
Introduction:
The FTSE 100 Index is dynamic—it doesn’t always include the same 100 companies. Every few months, the index is updated through a process called rebalancing. This ensures it reflects the current top performers in the UK stock market. In this article, you’ll learn how FTSE 100 rebalancing works, when it happens, and how it can affect your investments.
What Is FTSE 100 Rebalancing?
Rebalancing is the process of reviewing and updating the list of companies in the FTSE 100 based on their market capitalization.
If a company grows large enough, it can be added to the index.
If a company drops in value, it may be removed.
This keeps the index accurate and relevant, representing the 100 most valuable UK-listed companies.
When Does Rebalancing Happen?
The FTSE 100 is officially reviewed and rebalanced quarterly:
- March
- June
- September
- December
FTSE Russell publishes the review results and changes take effect shortly after the announcement.
Criteria for Inclusion or Removal
To be included:
- The company must rank among the top 90 by market capitalization.
To be removed:
- The company must fall below the 110th largest on the LSE.
This “buffer zone” avoids excessive changes and index churn.
All companies must also meet:
- Liquidity standards
- Free float requirements
- Primary listing on the London Stock Exchange
Examples of Rebalancing in Action
- In past years, well-known brands like Ocado or Just Eat were added due to rapid growth.
- Companies like Royal Mail have been removed after declines in share value.
Each change reflects shifting business performance and investor sentiment.
Impact on Investors
- Index funds and ETFs must adjust their holdings, leading to increased trading volume around rebalancing dates.
- New additions often see a short-term price boost due to buying pressure.
- Deletions may experience a short-term drop due to index fund selling.
- Rebalancing can slightly affect the performance of FTSE 100 ETFs and funds during those weeks.
How to Stay Updated
- Visit the FTSE Russell official site
- Check quarterly announcements from your ETF provider
- Watch financial news (e.g. Bloomberg, Reuters, FT) around the review dates
Conclusion
FTSE 100 rebalancing ensures that the index remains a reliable representation of the UK’s largest and most traded companies. While the process may seem routine, it creates trading opportunities and can influence stock prices. Staying aware of the rebalancing schedule helps you make smarter investment decisions.
FAQs
1. How often is the FTSE 100 rebalanced?
It’s reviewed and updated every quarter—March, June, September, and December.
2. Why are companies added or removed?
Changes are based on market capitalization rankings to ensure the index reflects the largest UK companies.
3. What happens to a company when it’s removed?
It typically moves to the FTSE 250, and another firm takes its place in the FTSE 100.
4. Can rebalancing affect stock prices?
Yes. Stocks being added often rise due to ETF buying, while deletions may drop short-term.
5. Where can I find rebalancing updates?
Visit the FTSE Russell website or check news platforms like Bloomberg and Financial Times.
