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Why not: The Russell reconstitution

Jason BondJason Bond ·

The backdrop: Today is the day when FTSE Russell reconstitutes its indexes, traditionally by volume the largest single trading day of the year. With roughly $8.5 trillion in assets based to the Russell U.S. index franchise, it’s not surprising that people see all that action and think there must be a way to play it.

Logically, the release of the list of who’s in and who’s out should be a trader’s dream, with the reconstitution causing a dump in the stocks dropped from the indexes and a pump for the names added.

Why I’m not trying to capitalize: I can’t say I haven’t tried in the past; I have bought stocks in front of reconstitution and sold stocks ahead of it.

I can only say that nothing really seems to work.

FTSE Russell released the preliminary changes to the index two weeks ago, and there aren’t likely to be many changes from that list of anticipated changes. After all, we know what Russell calls the “architectural blueprint to how the indexes are constructed and managed” because they don’t want this process to disrupt markets.

The result is that by the time we get to reconstitution day, any potential trades are already played out. There is heavy volume, but not the volatility to make a market.

Moral of the story: When someone tells you there is an easy way to make money on a regularly scheduled event where the news is already out, they’re setting you up to chase a red herring. Don’t bother.

How Petra Hess is playing the Russell reconstitution


   Jason Bond runs and is a swing trader of small-cap stocks. While he will be trading today as mutual funds re-jigger their portfolios to reflect the changes FTSE Russell is making to the composition of its indexes, he does not plan to make any moves based on the heavy volume anticipated in the market today.

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