And do index funds such as SPY and VOO usually rebalance immediately to reflect the change?
The S&P 500 constituents are rebalanced on a quarterly basis on the third Friday of March, June, September and December on the basis of their weighting and other relevant factors.
Intra-quarter changes can also occur, typically because a company becomes ineligible to remain in the index, such as takeover/merger, removal from major exchanges due to bankruptcy, demergers/spinoffs, change of domicile, change of organizational structure then this can happen intra-quarter. Such index removals typically involve a simultaneous addition to the index on or near to the removal date. Other companies can be added to the index prior to the quarterly through "fast track" IPOs.
Exchange traded funds, that seek to track the performance of the S&P 500 index, such as SPY and VOO, use various methods to (mostly) mirror the weightings in the S&P 500 index and these holdings are altered according to proprietary trading mechanisms at each issuer. Some ETFs may also use derivatives such as futures and options to assist/hedge this process - this will be detailed in the fund prospectus. Furthermore, there may be other SEC-related restrictions on an ETF's holdings that prevent it from holding too much of a given type of security (e.g. Investment companies can't hold too much of other investment companies).
Since S&P announces index changes prior to them happening, typically these funds already have many arrangements in place to increase/reduce their holdings on an off-market or dark pool environment at the exact time the changes occur in the index. For example, a company being promoted from S&P MidCap 400 to S&P (LargeCap) 500, and one being demoted, would involve many midcap funds wanting to offload their holdings - so the S&P 500 funds would be an obvious choice for a hassle-free and transction-fee-free swap from both parties.
All ETF providers are required to report their holdings on a daily basis. These typically show the index changes immediately, with the occasional minor of an old constituent probably due to administrative error or liquidity issue.
As of Oct 2019, since 1967, there have been a total of almost 1800 securities that have been in the index/currently in the index at some point, representing an average turnover of about 25 stocks per year, but has been as high as 60.
- S&P 500 methodology: https://us.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf
- Databases at Norgate Data: https://norgatedata.com/
- SPDR S&P 500 ETF (SPY) Holdings: https://www.ssga.com/resources/universal/index.html
- Insights into the S&P 500, by S&P: https://www.indexologyblog.com/2013/07/09/inside-the-sp-500-selecting-stocks/
- SPDR S&P 500 ETF overview: https://us.spdrs.com/en/etf/spdr-sp-500-etf-trust-SPY
- SPDR S&P 500 ETF Prospectus: https://us.spdrs.com/public/SPDR_500%20TRUST_PROSPECTUS.pdf
The index rebalances quarterly. Different fund providers have different approaches to the rebalance. Some might try to rebalance a little ahead of the index. Others may try to track as closely as possible.
The above is for educational purposes only. It is not investment advice or a recommendation to buy or sell securities.