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FTSE Russell Reconstitutes US Equity Indexes

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FTSE Russell has announced its annual reconstitution of the Russell 3000 index, which tracks the performance of the 3,000 largest U.S. traded stocks, and the Russell Microcap, comprised of over 1,500 of the smallest U.S.-based stocks. Both indexes are market-cap weighted.

In total, close to 170 stocks will be added and about 160 stocks will be deleted from the market-cap-weighted indexes, effective July 1, the first trading day after the list is finalized on June 28.

A preliminary list of changes released June 7 reveals that Uber, Lyft , Beyond Meat and PagerDuty, which all went public earlier this year, will join the Russell 1000, along with Spotify, which went public the previous year. A final list won’t be published until June 28, but updates will be available on June 14 and 21.

Within the Russell 1000, Microsoft will move up to the top spot in the cap-weighted index, replacing Apple, which will fall to third place. Microsoft gained nearly 30% in value over the past year, while Apple lost 2.1%, according to FTSE Russell. Rounding out the top 5 stocks in the Russell 1000 are three more tech stocks: Amazon (#2), Alphabet (#4) and Facebook (#5).

These changes reflect the outperformance of growth stocks over value stocks and with it the recharacterization of some stocks. Microsoft, for example, is shifting from 5% value / 95% growth to 100% growth, which is “a notable move given the size of the stock,” according to FTSE Russell. Comcast is moving from 100% value to 53% value / 47% growth.

Other companies are becoming a larger part of the Russell 1000 Value Index at reconstitution, including Berkshire Hathaway (BRK.A), which is expected to shift from 13% growth / 87% value to 100% value, leaving the Russell 1000 Growth Index. (Most companies in the Russell Indexes are 100% growth or 100% value-oriented, but some represent a blend of both growth and value characteristics, according to FTSE Russell.)  

FTSE Russell bases the reconstitution of its indexes on the closing prices from the NYSE and Nasdaq. About half of the stocks in the broad market Russell 3000 Index are listed on either exchange, and each exchange has its own pricing mechanism: NYSE-listed stocks utilize the exchange’s auction mechanism while Nasdaq-listed stocks utilize Nasdaq’s “closing cross” mechanism.

This year the firm is fine tuning its U.S. reconstitution process, as follows:

    • Companies slated for addition to the indexes that have had their trading suspended during the 2019 reconstitution period will not be added regardless of whether trading resumes prior to June 28.
    • Companies that have had their trading suspended for 60 or more days before the start of reconstitution period on June 7 have until Friday, June 14, to resume trading or they will be removed from the indexes.
    • Qualifying equity offerings on the Monday, Tuesday or Wednesday of the final week of the Russell reconstitution period (June 24 to June 26) will enter the indexes at this year’s reconstitution effective Monday, July 1, but equity offerings on Thursday or Friday of that week will not be eligible to be added.

— Check out Half of Russell 3000 Companies Report No Change in Board Composition on ThinkAdvisor.