On Friday, June 27th, the last annual Russell Reconfiguration will be displayed before the index provider switches to reconfiguration twice a year. We’ve covered it before, but usually Russell Reconstruction Day is the biggest end of the year. There was no difference last year either – $220 1 billion US stocks traded on NASDAQ and the New York Stock Exchange at the end of the trading on June 28, 2024.
Nearly $200 billion in trade could be nearing the end tomorrow as the index tracking fund purchases Russell US index additions and sells deletions. ftse estimate $8.5 trillion benchmarked by the Russell Index for a $2 trillion passive pursuit.
With a significant amount of tracking, the Russell Index is extremely important for businesses and mutual fund investors. The Russell 3000 Index (comprising the Russell 2000 Small-Cap Index and the Russell 1000 Lage-Cap Index) is a major US market benchmark. Companies in the index tend to have a strong long-term institutional foundation through index tracking funds, with increased revenue, reduced transaction costs and a solid foundation for long-term institutional investors.
Enter Russell US Index
According to Russell, this year 228 The company has been added to the Russell 3000 index. The reconfiguration process began on April 30th, with rank day or index providers assessing which companies were eligible for which index.
Table 1 shows that rules for each company in the Russell US Index must be passed to add them.
After determining eligible securities using the rules above, FTSE Russell assigns them to 1000, 2000, 3000, 3000, and 3000E (maximum 4000 eligible US stocks) indexes based on the market capitalization rank.
this year:
- Russell 2000 There are 211 additions and 155 removals. Notable additions include CRSP, Xene, Geni, and INDV. In addition, there were 44 migrations between Russell 1000 and 2000.
- Russell 1000 18 has been added and no deletions. Additional items include Fult, Flex, TLN, and TEM. The smallest addition of this year is KRMN, which has a market capitalization of $6.2 billion. Interestingly, eight additional additions are incorporated outside the US. Six are headquartered outside the US, five are incorporated and headquartered overseas.
Not all US companies are built into the US and are headquartered in
Russell’s components are built outside the US, with approximately 200 people headquartered in the head office of around 130 people overseas. Chart 1 shows the percentage of “foreign” companies on the Russell 3000 index.
Chart 1: “Non-US” Russell 3000 Components
That might surprise the index that benchmarks the US market, but FTSE Russell makes it clear rule Evaluate the “foreign” list to make sure they represent the US market.
First, the company Must do Listed in the US Exchange and submit files with the SEC. But if the country has double foreign listings, or offshore establishments, or headquarters in another country, Russell looks at other data to see if the company looks American.
- First of all, they are looking for 20% of their assets in the US than any other country.
- If it is not reported or inconclusive, they are looking for 20% revenue from the US than any other country.
- And if that’s not critical, there will be more tests (please call us for more details).
It can be complicated, but one thing that makes Russell different from S&P is that it’s rule-based (not subjective).
Additions are suitable for businesses
Importantly, adding to the popular US index is a good thing for businesses. It usually offers new index investors, who are long-term holders. It also increases the demand for stocks from aggressive institutional investors who are insufficiently weighted in the newly added stock.
It is these index funds that are primarily traded on the restructuring day, where investors expect very low tracking errors, and what the funds need to match closely with index changes. Chart 2 uses the market in close trading and echo prints for behavioral estimates of the number of shares actually traded on Rebalance Day by index tracking funds.
- Big cap You can have 21% of the floats held by the Russell 1000 and the S&P 500 index tracking fund. This is up to 28% if it is also available on the Nasdaq-100®.
- Small cap Russell 2000 tracking funds can have 10% of the floats held. If you’re also in the S&P 600, it’s up to 27%.
Chart 2: Index Tracking Funds could own about 25% of float stocks in many companies
As the addition of indexes increases demand for active funds, hedge funds and other liquidity providers, overall liquidity tends to increase even after indexes are added. In Chart 3, you can see that the addition of a new Russell 2000 index increases five months before reconfiguration. The increase in liquidity before reconstruction is likely due to the general trade of hedge funds. Purchase index additions before restructuring and sell to index funds.
More importantly, liquidity remains rising after reconstruction, indicating that increased demand remains in the long term. Some people may come from aggressive financial transactions closet Although an indexer, thanks to the addition of indexes, the company benefits from reducing the asymmetry of information regarding inventory and reducing capital costs from increasing liquidity prior to reconstruction. Furthermore, increasing demand from index buyers can also boost stocks price.
Chart 3: Liquidity increased several months before Russell’s reconstruction and continued to rise afterwards
Long-term liquidity improvements reduce the cost of trading stocks, make it easier for businesses to raise capital, and make investors quicker to complete large transactions.
Russell reconstruction every six months
2026, Russell The US index has moved to reconstructions twice a year in June and November. The new structure is reaffirmed as follows:
- Russell US size index and Russell US style indexes will be indexed on the last Friday of June.
- Only Russell US-sized indexes for the second Friday of November.
This change gives businesses the opportunity to include twice a year, not once. This is a welcome update for publishers who want to enter the index. The November restructuring could be smaller than in June, but we will see how the change will affect Russell restructuring’s daily trading volume next year.
