Russell 2000 rebalances their holdings at the end of June every year. Here is what they say about rebalancing:
June is the month that the preliminary reconstitution portfolio is communicated to the marketplace. Beginning on June 9, preliminary lists are communicated to the marketplace and updates are provided on June 16 and 23. The newly reconstituted indexes take effect after the close on Friday, June 23.
I have previously read about this “anomaly” and decided to test it myself. So here is the strategy I tested:
- Buy on the close on the first trading day after 21st of June.
- Sell on the close on the first trading day of July.
- Tested period is from year 2000 until 2016, 17 years, on IWM
Average gain for IWM in this period is 1.26%. That is well above any random period of the year.
Perhaps even more interesting is too look at the difference between S&P500 and Russell 2000. Below you find the performance for IWM, SPY and IWM minus SPY (a hedged position).
|Symbol||Date||Ex. date||% Profit||Symbol||% Profit||IWM||against SPY||hedge|
Average volatility is higher for IWM. Still, IWM does not fall a lot more than SPY in the down years.
Here is the graph:
Clearly, a hedged position is less volatile (as to be expected).
Also worth noting is that June up until 21st of June shows an average gain of zero percent.