Index providers establish a set of criteria that securities must meet to be considered for inclusion in an index. In many indexes, the primary requirement for inclusion is market-capitalization, or the size of a company. Generally, indexes don’t pay attention to the earnings quality of companies, meaning companies can lose money for years before being removed. Securities are evaluated and ranked based on the selection criteria. After the evaluation and ranking process, the index provider constructs the index by selecting securities according to their respective weights. Over time, companies that grow enough in size may be added to the index, while companies that shrink below a minimum requirement are removed. The companies in the index are updated regularly during a process called reconstitution. When a company is removed from an index, it is called a delisting. Delistings can have a significant impact on performance. Reconstitutions When a stock is removed, index providers typically replace it with another eligible security that meets the inclusion criteria. This rebalancing process may require selling the delisted stock and purchasing the newly added security, leading to transaction costs and potential