The move potentially impacts more than $175 billion that Russell says rely on its US indexes as benchmarks. Russell adjusts its indexes annually in order to accurately rank the 3,000 largest companies in the US stock market by market capitalization.
The largest 1,000 companies in the ranking comprise the Russell 1000 while the remaining 2,000 companies become the Russell 2000.
Overall, about 520 companies will be added to the Russell 3000. The total market value of the index will likely top $12.5 trillion, dropping about $1.5 trillion from this time last year.
Final index membership will go into effect July 1 and remain in place for one year.
Russell’s rebalancing method differs from some, such as Standard & Poor’s, which adds and deletes stocks from its indexes throughout the year.
Another difference in index selection is that Russell makes its determination strictly on the basis of market capitalization rankings and style attributes, rather than by what it terms “subjective opinion or committee decisions.” In fact, the relative openness of their methodology generally precludes the temporary surges in stock price frequently associated with additions to the S&P 500.
The preliminary “additions” include 148 initial public offerings (IPOs), considerably fewer than the 317 added last year to the Russell 3000. Similarly, just 18 IPOs are likely to join the large-cap index this year, declining from 86 last year, according to the company.
The indexes include qualified real estate investment trusts (REITs) and IPOs. Stocks included must be US-domiciled, but exclude:
- limited partnerships
- limited liability companies
- royalty trusts
- closed-ended investment management companies
- preferred stock
- pink-slipped companies
- OTC bulletin board companies
- warrants and rights
The indexes also do not include stocks trading below $1 at rebalancing.
Following the posting of the preliminary list of additions/deletions, the next steps are:
- June 15 and 22: Updated preliminary lists of additions and deletions will be posted.
- July 1: Newly rebalanced indexes go into effect.
- July 9: Final membership lists for the Russell 1000, Russell 2000, and Russell 3000 Indexes (in alphabetical order) will be available to all investors on Russell.com.
The preliminary list is at http://www.russell.com/WW/Indexes/membership.asp