Russell Investments has posted its official lists of companies set to join or leave the U.S. broad-market Russell 3000® Index and Russell Microcap® Index when its industry-leading U.S. equity indexes fully reconstitute on June 28. These lists of U.S. companies—and lists of additions and deletions for the Russell Global Index—are now available at the Russell reconstitution website.
The Russell 3000 Index, which reflects about 98% of the investable U.S. equity universe, returned 27.9% for this year’s reconstitution period, from May 31, 2012 through May 31, 2013. Performance was equally strong across large- and small-cap stocks for this period, with the U.S. large-cap Russell 1000 Index returning 27.6% and the U.S. small-cap Russell 2000® Index returning 31.1%. The Russell 1000, Russell 2000 and Russell 3000 Indexes all broke through new all-time historical highs earlier this year.
Key measures of market size are significantly higher across the Russell Global Indexes this year, reflecting market performance. In the U.S., the combined capitalization of stocks in the Russell 3000 is expected to increase nearly 25% from $15.8 trillion at May 31, 2012 to $19.7 trillion at May 31, 2013. Similarly, market value weighted average market capitalization is expected to increase from $87.4 billion to $90.4 billion.
Breakpoints between the Russell U.S. indexes are expected to increase significantly across the board since last year’s reconstitution, with a 30% increase in the cutoff between the U.S. large-cap Russell 1000 Index and U.S. small-cap Russell 2000 Index. The new $2.6 billion expected breakpoint between these two indexes will exceed the previous high of $2.5 billion established in 2007. In addition, the market capitalization threshold for new companies entering the Russell 2000 Index is expected to increase by 28% to $128.9 million.
“Russell's index reconstitution reflects the broad-based global equity market rally over the past year. The granularity afforded by these indexes also show that there have been notable differences across markets and regions ─ with pockets of strength and softness having emerged in recent months,” said Steve Wood, chief market strategist for North America at Russell Investments. "The annual global market ‘snapshot’ at Russell Indexes reconstitution provides an excellent tool for market analysis and exposure to key drivers across regions, capitalizations, sectors and styles. This makes the indexes a critical resource for globally diversified multi-asset investors.”
Financial Services and Technology are expected to remain the top two sectors by weight within the Russell 3000 Index at reconstitution in a year with minimal shifts in sector leadership. The U.S. Financial Services and Healthcare sectors reflected the strongest performance over the year, returning 39.7% and 36.4%, respectively.
Technology leader Apple Inc. ($422.1 billion) is expected to remain the largest company in the Russell 3000 Index in terms of market capitalization despite a 22% decrease in size. Apple overtook ExxonMobil at last year’s reconstitution to become the largest company in the Russell 3000 Index. ExxonMobil ($402.3 billion) has re-gained ground this year, growing 9.4% to narrow the gap between the two largest U.S. companies. Apple has shifted from a 100% growth orientation at 2012 reconstitution to a 76% growth / 24% value orientation. Microsoft ($293.1 billion), Google, Inc. ($287.9 billion) and Berkshire Hathaway ($281.2 billion) are expected to round out the five largest U.S. companies, with Google up more than 50% since May 31, 2012.
One notable change in the Russell 3000 Index this year is the weight represented by Facebook. As the largest IPO addition to the Index at last year’s reconstitution following its May 2012 IPO, it is expected to increase its weight within the Index given the release of previously “locked-up” IPO shares, increasing available market cap from $10.2 billion to $41.5 billion at this year’s reconstitution.
Equity markets outside the U.S. also notched strong gains in the past year, as reflected by the Russell Global ex-U.S. Index, which includes approximately 7,000 securities in 46 countries covering 98% of the investable equity market outside the U.S. Within the Index, combined market capitalization will increase by 18.3% from $28.4 trillion as of May 31, 2012 to $33.6 trillion as of May 31, 2013 and market value weighted average market capitalization will increase from $38.8 billion in 2012 to $46.8 billion in 2013. The largest company in the Russell Global ex-U.S. Index remains unchanged from 2012, with Petrochina Co. Ltd. ranking number one in size. Like Apple in the U.S., Petrochina also experienced a decrease in total market cap between reconstitution periods, with a total market cap of $249.5 billion as of May 31, 2013, down 7% from $267 billion in May 2012.
The Russell Global ex-U.S. Index returned 26.7% for this year’s reconstitution period, from May 31, 2012 through May 31, 2013. Notably, European markets helped drive performance for this time period, with the Russell Eurozone Index returning 39.1%. Within Europe, strong performers included Greece (73.8%), Spain (50.1%), Portugal (46.5%) and Italy (44.0%).
And the Russell Frontier Index was a strong contributor to non-U.S. market performance in the past year, returning 26.9%, with Nigeria a standout with an 86.2% increase. The Russell Emerging Markets Index, while still positive, reflected a relatively smaller return of 16.5% since last year’s reconstitution. Specifically, the Russell Emerging Markets Index was weighted down by the BRIC nations (Brazil, Russia, India & China) which represent a sizeable portion of the Index and have all underperformed since last year’s reconstitution.
Greece will officially become an emerging markets country within the Russell Global Indexes at the conclusion of reconstitution. Russell Indexes first announced on March 1 that Greece will be reclassified from a Developed to an Emerging market country at this year’s reconstitution, having failed to meet Russell Indexes’ Market Risk Review requirements for a Developed market country for three straight years. And, while no other country classifications are imminent for 2013, Egypt is in its second year of failing to meet the requirements to be classified as an emerging market country in Russell Indexes three-year Market Risk Review process.
“A regularly scheduled, transparent reconstitution process is a key feature of truly representative and objective benchmarks," said Rolf Agather, global head of index research and innovation at Russell. "Russell's unique process helps prevent capitalization drift and style bias and ensures proper country classification and market risk orientation. And it is adjusted and improved upon each year to make the indexes an accurate representation of current market realities and investor behavior. Russell Indexes reconstitution helps multi-asset investors better measure performance, identify opportunities and invest for the long term."
Since introducing its first equity index nearly 30 years ago, Russell has drawn on its unique insight into global capital markets and multi-asset portfolio construction and implementation to design benchmarks offering exposure to the true performance of different segments and asset classes of the market. When measuring or investing in markets, global multi-asset investors rely on Russell Indexes to provide accurate and objective market representation. $4.1 trillion in global assets are benchmarked to and more than $600 billion in passively managed assets are based on Russell’s global index family. The Russell Indexes reconstitution methodology has remained an industry standard since Russell introduced its first index in 1984 and Russell continues to improve on its reconstitution process each year.
The preliminary lists of additions and deletions are the first public step in Russell's annual reconstitution process. Any updates to the lists will be posted June 21 and 28. The closely watched final membership lists, which will include breakouts for the Russell 1000 Index, the Russell 2000 Index and the Russell Midcap® Index, will be posted June 28 after the close of the U.S. markets.
To complete this year's U.S. reconstitution, Russell uses primary exchange closing prices from NYSE and NASDAQ. About half of the stocks in the Russell 3000 broad market index are listed on either exchange. NYSE-listed stocks utilize NYSE’s auction mechanism while NASDAQ-listed stocks utilize NASDAQ’s "closing cross" mechanism to execute shares for each stock at a single price on June 28. This will mark the 10th anniversary of the Closing Cross.
About Russell Investments
Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell sands with institutional investors, financial advisors and individuals working with their advisors ─ using the firm’s core capabilities that extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes to help each achieve their desired outcomes.
Russell has more than $173 billion in assets under management (as of 3/31/2013) and works with over 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.6 trillion in assets under advisement (as of 12/31/2012). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.4 trillion in 2012 through its implementation services business. Russell also calculates approximately 700,000 benchmarks daily covering 98% of the investable market globally, which includes more than 80 countries and more than 10,000 securities. Approximately $4.1 trillion in assets (as of 12/31/12) are benchmarked to the Russell Indexes.
Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Toronto, Chicago, San Diego, Milwaukee and Edinburgh. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow us @Russell_News.
Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Russell Investments is the owner of the trademarks, service marks and copyrights related to its respective indexes. Russell’s indexes are unmanaged and cannot be invested in directly.
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