There is a myth that index-based ETFs are all static buy-and-hold products that passively track a benchmark. Many people think of indexing through the lens of market-cap strategies like the Vanguard S&P 500 ETF (VOO). For VOO, holdings simply adjust based on daily price moves. However, as VettaFi demonstrated last week, this is not the case.

The reality is that many index-based ETFs are far more dynamic. Driven by strict, rules-based methodologies, a significant number of index strategies undergo scheduled reconstitutions and rebalances. These periodic updates allow related ETFs to actively shift constituent weights, capture emerging trends, and swap in companies with improving fundamentals. This is all done without introducing human manager bias.

Systematic maintenance in action: Mid-September rebalances

The mid-September 2026 rebalancing cycle across VettaFi-managed benchmarks highlights how rules-based methodologies continuously reshape factor and thematic portfolios:

• Free Cash Flow Discipline (VFLO): The VictoryShares Free Cash Flow ETF (VFLO) tracks a dynamic index that ranks large-cap companies by expected free cash flow yield while filtering out weak growers. Following its September rebalance, VFLO added cash-generators with improving fundamentals like Micron Technology (entered at a 4.20% weight) and IBM (2.20%). Meanwhile, VFLO exited names whose cash flow profiles or growth outlooks had cooled.
• Quality Growth (QGRO): The American Century U.S. Quality Growth ETF (QGRO) rebalances across distinct stable-growth and high-growth subsleeves. During its September update, QGRO dynamically adapted by adding Amazon (3.0% weight) to its stable-growth sleeve while reallocating away from names like Nvidia to manage momentum risk.
• Healthy Small Caps (OUSM): The ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM) completed its annual reconstitution. The multifactor index rotated out of debt-heavy, low-margin names to rotate into resilient, cash-flow-rich companies demonstrating accelerating fundamentals, such as Concentra Group and Universal Health Services.
• Targeted Thematics (THNR & UFO): In thematic benchmarks, rules-based rebalances adjust allocations to match shifting industry developments:
  • Amplify Weight Loss Drug & Treatment ETF (THNR): Designed to track the GLP-1 weight-loss pharmaceutical ecosystem, THNR refreshed its holdings by adding healthcare and biopharma leaders Gilead Sciences and Structure Therapeutics based on the success of their drug pipelines.
  • Procure Space ETF (UFO): Tracking the VettaFi Space Index, UFO’s rules-based framework more than doubled its allocation to commercial aerospace pioneer SpaceX. This allocation was increased to its index-capped ceiling of nearly 15%.

Why rebalancing benefits everyone

Automated rules-based adjustments offer the best of both worlds:

1. Upgrading Fundamental Strength: Factor-based screens will remove companies with deteriorating balance sheets while adding companies showing improving cash flows and strengthening earnings power.
2. Systematic Profit-Taking: Regular rebalancing forces the strategy to trim outsized winners and reallocate capital into undervalued opportunities before momentum reverses.
3. Operational Transparency: Advisors gain hands-off, tax-efficient portfolio maintenance governed by published index guidelines. Adjusting portfolios is not exclusive to actively managed ETFs.

 Key takeaways

• Mid-September rules-based index updates changed the holdings of many prominent ETFs based on company fundamentals or valuation.
• The $11 billion VictoryShares Free Cash Flow ETF (VFLO) added IBM and Micron, while the $2 billion American Century US Quality Growth ETF (QGRO) now includes Amazon but no longer NVIDIA.
• Thematically focused Procure Space ETF (UFO) weighting in SpaceX more than doubled during the $550 million fund rebalance.

VettaFi LLC (“VettaFi”) is the index provider for OUSM, QGRO, THNR, UFO, and VFLO, for which it receives an index licensing fee. However, OUSM, QGRO, THNR, UFO, and VFLO are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OUSM, QGRO, THNR, UFO, and VFLO.