Russell Indexes Stirred, Not Shaken by Reconstitution

June 16, 2003 (PLANSPONSOR.com) - Frank Russell Company has posted its preliminary lists of companies that will join or leave the broad-market Russell 3000 Index when the firm reconstitutes its family of 21 unmanaged US equity indexes this month.

At that time, the total market value of the index will likely drop to $11 trillion in total capitalization, which indicates the US equity market shed about $1 trillion from this time last year – and a total of $3.5 trillion since July 2000.

As a result of the annual reconstitution, an estimated 288 companies will be added to the benchmark Russell indexes at the end of the month, according to the Frank Russell Co.   That’s 29% fewer than last year’s reconstitution, which added 404 firms (see  Russell Reconstitutes US Indexes ), and 42% below the 10-year average of 495 firm additions.

Russell notes that a contributing factor is a sharp decline in the number of initial public offerings, or IPOs.   An estimated 28 IPOs will be added to the Russell 3000 this year, compared with 66 IPOs added in 2002, the 148 added in 2001 – not to mention 2000’s record setting 317.

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The annual reconstitution process takes the 3,000 largest US stocks as of the end of May and ranks them by total market capitalization.   The largest 1,000 firms in the resulting Russell 3000 become the Russell 1000, while the remaining firms become the Russell 2000, an index widely used as a proxy for small-cap stocks.

The composition of the 12 sectors that make up the Russell 1000 and the Russell 2000, which groups the 2000 smallest companies, is expected to remain relatively consistent, according to Russell.   In the Russell 2000, for example, the weighting of technology-related companies is expected to increase to 15% from 14.3%, while financial service stocks will likely decrease to 22.9% from 23.4% at present.

Despite that trend, a total of 72 banks, regional banks, and savings and loans are included on this year’s “additions” list. By contrast, only four such financial institutions were included on the “deletions” list, according to Russell.

An update to these lists will be posted June 21, while the final membership lists for the Russell 3000, Russell 2000, and Russell 1000 will be posted July 9.

Information on the reconstitution is online, and the preliminary list of moves is at http://www.russell.com/US/Indexes/US/membership/recondirectory.asp

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