Every June, Russell re-evaluates the index composition of its indexes.
Why? Over 30 ETFs and many more mutual funds with more than $500 million in assets are tied to the various Russell indexes, and the rebalancing leads to heavy trading, volatility and even speculation. This will have an impact on many stocks, mutual funds and ETFs. And it catches the attention of hedge funds managers, analysts and speculators.
Benchmarks will change, and fund managers will be busy to adjust their holdings in order to continuously track the “new” benchmark closely. Numerous analysts’ reports are popping up with educated guesses on which companies will be dropped, included and thereby rise and fall.
Unlike other indexes, the Russell methodology is quite transparent. Russell picks the largest companies (which represent 99 percent of the U.S. equity market) for its master list. The 1000 biggest companies constitute the Russell 1000 Index, the next 2000 biggest companies constitute the Russell 2000 Index. and both indexes combined create the Russell 3000 index.