You may have noticed some new stocks in your ETF without you buying or selling anything. This is completely normal, and part of a process called ‘rebalancing’. Let us explain.
When you buy an ETF, you are typically investing in a basket of stocks. For example, if you own the Global X FANG+ ETF (FANG), you are gaining exposure to an index of 10 US-listed technology stocks. This particular index (or basket of 10 stocks) is called the NYSE FANG+ Index, and it rebalances every quarter. Its most recent rebalancing saw the addition of a new name: Palantir.
Expert insight: Regular Maintenance
Marc Jocum, senior investment strategist at Global X, says while it may be confusing for new investors when they see that the companies within their ETF have changed, it is perfectly normal.
“ETF rebalancing is a bit like gardening, where regular maintenance is essential,” he says.
“Some plants (your investments) grow faster than others. If left unchecked, a single fast-growing plant can dominate the space, while others struggle for sunlight.”
Marc says rebalancing is like giving your garden a gentle prune by trimming what has grown too much and giving a little more attention to the areas that haven’t flourished: “The goal isn’t to uproot everything and start over, but to ensure the overall garden remains balanced, healthy, and aligned with your long-term vision.”
Why does rebalancing happen?
ETFs need to remain true to label, which means their holdings must abide by a certain rule or index. Rebalancing the portfolio periodically ensures that your ETF remains true to label and the assets within in are right-sized.
Is there anything I need to do?
No. The beauty of ETFs is that they make this process straightforward. Rebalancing happens automatically, without you having to do a thing. Depending on the ETF, rebalancing can occur quarterly, semi-annually or annually.
Can I rebalance my own portfolio?
If you hold a portfolio of ETFs, you may want to consider your own maintenance to ensure it is still meeting your desired goals.
“If you’ve planned for 60% growth assets such as shares and 40% defensive such as bonds, for example, strong share market performance in 2025 could have upped the balance to shares to 70% and down to 30% for bonds,” Marc explains.
“That tilts your risk profile higher than intended, potentially leaving your portfolio more exposed to market swings. By gently trimming some of the overgrown positions and adding to the underweight ones, you can restore balance and try keep your risk in check.
“The key is consistency, not constant tinkering. A portfolio that’s regularly tended, even with small adjustments, may be better positioned to weather market ups and downs than one that is left to grow unchecked.”
Key Takeaways
- ETFs rebalance periodically to ensure they remain true to label. This means you may see stocks entering or exiting your ETF from time to time.
- ETFs rebalance automatically, requiring no action on your part.
- The same method can be applied to your own investment portfolio, and you can periodically rebalance it yourself by reviewing it against your risk profile and goals.
- Rebalancing doesn’t have to be complicated. Some investors set a regular schedule.
- Digital investing tools can even automate this process, quietly keeping your portfolio in balance in the background.
