How Index Funds Can Combat This Hidden Cost

Friday was a big day in the world of indexes. It was also a costly one for index investors.

I’m referring to the annual reconstitution of the FTSE Russell indexes — the day that the index provider officially updates the components and allocations of its indexes, such as the popular Russell 1000 Index and Russell 2000 Index.

It’s also the day mutual funds and exchange-traded funds that track a FTSE Russell index revamp their portfolios to match it. The result is a torrent of trading. Roughly 1.9 billion shares of common stock traded on the New York Stock Exchange on Friday, according to volume calculated by Bloomberg. It was the second-busiest trading day of the year and nearly triple this year’s average daily volume of 712 million shares.

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