Russell Announces Preliminary Lists of U.S. and Global Index Additions for Its Annual Reconstitution and Celebrates 30 Years of Index Innovation

  • Indexes reach new record highs as global equity markets expand, while Russell’s U.S. core and style indexes highlight shift in U.S. equity market leadership to large-cap value-oriented stocks.
  • Another record breakpoint between U.S. large-cap Russell 1000® and small-cap Russell 2000® Index, increasing 19% to $3.1 billion from $2.6 billion at 2013 reconstitution.
  • Egypt classified as frontier market; index country assignment changes for Tyco, Liberty & Delphi; business development companies (BDCs) no longer eligible.
  • Russell to ring bells at NYSE and NASDAQ stock exchanges to conclude annual reconstitution and commemorate 30th birthday for Russell Indexes.

SEATTLE--()--Russell Investments has posted its official lists of companies set to join or leave the Russell Global Index, Russell 3000® Index and Russell Microcap® Index when the annual reconstitution for its U.S. equity indexes concludes on June 27. The lists of projected additions and deletions for the Russell Indexes are now available at the Russell reconstitution website.

Each June, Russell completely realigns its family of global equity indexes to reflect market changes in the past year. This year’s rebalance will impact approximately $5.2 trillion in assets benchmarked to and nearly $800 billion in assets invested in institutional and retail investment products based on the Russell Indexes.

“Today the global equity markets receive their annual report card,” said Ron Bundy, CEO of Russell Indexes. “Index reconstitution is a critical time for our global indexes and for our clients. Because this process includes our entire index family and impacts investors around the world, it is one of the most closely watched market events of the year. This year’s reconstitution is even more significant as it has been 30 years since Russell first introduced market indexes.”

Since the Russell 1000, 2000 and 3000 Indexes were introduced in 1984, the Russell family of global market indexes has grown to reflect three decades of unprecedented growth in the global equity markets:

  • An original member of the Russell 3000, Apple Inc. had a market cap of $1.6 billion in June 1984. At May 30, 2014 (ranking day for 2014 reconstitution) it is $545.3 billion as Apple retains the top spot.
  • As of the beginning of 1984, total U.S. market cap was $1.8 trillion, as measured by the Russell 3000. At this year’s reconstitution, this number is $23.2 trillion.
  • In 1984, the breakpoint between the Russell 2000 and the Russell 1000 was $255 million. At this year’s reconstitution, it is $3.1 billion.

U.S. leads global equity markets to new all-time highs; leadership shifts toward large-cap value in the U.S. as peripheral Europe rebounds

“This year’s Russell rebalance reflects continued lumpiness in the global economy, with notable shifts in market leadership and important differences across regions and countries,” said Stephen Wood, Russell Investments’ chief market strategist. “U.S. growth continues, albeit at a slower pace than 2013, with small cap, growth-oriented stocks ceding the stage to large-cap value in recent months. While structural risks remain in Europe, the region may begin to benefit from favorable European Central Bank policies. And while there are areas of opportunity in emerging and frontier markets, we also expect wide differences across countries. The diverse nature of global returns in the past year suggests the benefit of a globally diversified, multi-asset investment approach.”

Total market cap for the Russell 3000® Index, reflecting about 98% of the investable U.S. equity universe, increased nearly 18% to $23.2 trillion for this year’s reconstitution period, from May 31, 2013 through May 30, 2014. The U.S. small-cap Russell 2000® Index increased over 17% to $2.0 trillion. And the breakpoint between U.S. small- and large-cap stocks hit a new record of $3.1 billion, up 19% from $2.6 billion in 2013.

In the U.S. market, the Russell 1000, 2000 and 3000 Indexes all reached new record highs in the past year. Large caps outperformed small caps during the one year period ending May 30, 2014, with a 20.9% return for the Russell 1000® Index relative to a 16.8% return for the Russell 2000 Index. Year-to-date, performance leadership in the U.S. has shifted to large-cap value, with the Russell 1000 Index outperforming the Russell 2000 Index and the Russell 1000 Value Index outperforming the Russell 1000 Growth Index.

The largest three companies in the Russell U.S. Indexes in terms of total market capitalization at this year’s reconstitution are Apple, Inc. ($545.3 billion), ExxonMobil Corp. ($431.7 billion) and Google, Inc. ($385.6 billion). Apple retains its position as the largest U.S. stock in the Russell Indexes in terms of market capitalization, increasing by more than 29% from 2013, and now stands at 100% growth (last year it was 76% growth, 24% value). Microsoft, the fourth largest U.S. company, is the biggest addition to the Russell 1000 Value Index, moving from 100% growth in 2013 to a 65%/35% growth and value split, making it 1.2% of the Index.

Total market cap for the Russell Global Index, reflecting about 98% of the investable global equity universe, increased 2% to $54.6 trillion for this year’s reconstitution period, from May 31, 2013 through May 30, 2014. The global index (which includes the U.S. market) experienced an 18.1% increase for the 12-month period ending May 30, 2014, while the Russell Global ex-U.S. Index returned 15.9% for the same period. Top performing developed market countries over the last year include Spain (46.4%), Denmark (44.3%), Italy (39.6%) and Finland (38.6%).

With a one year return of 5.7%, the Russell Emerging Markets Index lagged compared to developed markets. Top performing emerging market countries included the United Arab Emirates (75.9%), Egypt (50.3%) and Greece (27.6%). While Egypt exhibited strong performance over the last 12 months, persistent economic and market risks associated with Egypt resulted in Russell’s reclassification from emerging to frontier market status as of reconstitution 2014.

The Russell Frontier Index returned 16% in the twelve months ended May 30, 2014, with Qatar (54.5%) the top performing country. Qatar’s strong equity market growth caused its index weight to be capped at the maximum of 15%, according to Russell Frontier Index methodology.

The largest company in the Russell Global ex-U.S. Index is now Netherlands-based Royal Dutch Shell PLC with a total market cap of $254.5 billion, replacing Petrochina Co, Ltd. Of the 846 new additions to the Russell Global Index at reconstitution (41 of which are IPOs), the U.S. gained the largest number of new companies through the reconstitution process (148) followed by Taiwan (68), China (67) Japan (59) and the United Kingdom (56). The U.S. led all Russell Global Index country constituents in IPO additions at reconstitution with 27, followed by the UK (7), and China (5).

Index Methodology Determines Country & Company Re-classifications, BDC Disqualification

"A regularly scheduled, transparent reconstitution is a key feature of truly representative and objective benchmarks," said Rolf Agather, managing director of global index research and innovation at Russell Investments. "Russell reconstitution has stood the test of time, allowing the indexes to grow and evolve along with the global equity markets in the last thirty years. We are continually reviewing our reconstitution process and enhancing it when necessary to ensure it produces fully representative indexes and that our global index family reflects the market realities of today.”

Russell has brought a series of industry firsts to its reconstitution in the last three decades that have become standard in market indexes. Notable improvements have included changing the frequency to annual from semiannual to achieve what Russell believes to be the optimum balance of accuracy and cost for investors, adding eligible IPOs to the indexes quarterly (versus annually only at reconstitution) to reduce turnover while improving market representation and adding banding around market cap index breakpoints to reduce turnover levels between small-cap and large-cap U.S. stocks.

As previously announced on March 3, 2014, Russell’s index country classification process has determined that Egypt, formerly classified as an emerging market, will enter the Russell Frontier Index effective at reconstitution. In addition, Russell’s rule for determining country assignment for index constituents, which takes into consideration three home country indicators (HCIs) 1) country of incorporation, 2) country of headquarters 3) location of most liquid exchange, as well as primary location of assets and/or revenue when necessary, has determined that Tyco, Inc., will be reclassified from Switzerland to the U.S. and rejoin the Russell 1000 Index. Russell’s country assignment rule has also determined that Liberty Global and Delphi Automotive, currently in the Russell 1000, will be reassigned to the Russell Global ex-U.S. Index.

Russell also concluded that business development companies (BDCs) are ineligible for Russell Index membership as a result of issues related to reporting of acquired fund fees per SEC regulation. At the June 2014 Russell Index reconstitution, BDCs will be removed from the Russell Indexes.

The preliminary lists of additions and deletions are the first public step in Russell's annual reconstitution. Any updates will be posted June 20 and 27. Final membership lists, which include breakouts for the Russell 1000 Index, the Russell 2000 Index and the Russell Midcap® Index, will be posted on Monday, June 30.

To complete this year's reconstitution, Russell uses primary exchange closing prices from The NASDAQ Stock Market (NASDAQ) and NYSE. About half of the stocks in the Russell 3000 broad market index are listed on either exchange. NASDAQ-listed stocks utilize the NASDAQ’s Closing Cross auction, official platform for the Russell rebalance, while NYSE-listed stocks utilize the NYSE’s floor-based high-tech, high-touch auction process to execute shares for each stock at a single price on June 27. Russell will commemorate its 30th index anniversary and conclude its annual index reconstitution with bell ceremonies at NYSE (opening Tuesday, June 24) and NASDAQ (“Closing Bell” during the NASDAQ Closing Cross on Friday, June 27).

For more information, go to the Russell reconstitution website.

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 stands 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 investment outcomes.

Russell has more than $259 billion in assets under management (as of 3/31/2014) 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 $2.4 trillion in assets under advisement (as of 6/30/2013). 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 $1.6 trillion in 2013 through its implementation services business. Russell also calculates approximately 700,000 benchmarks daily covering 98% of the investable market globally, including more than 80 countries and more than 10,000 securities. Approximately $5.2 trillion in assets are benchmarked (as of 12/31/2013) to the Russell Indexes, which have provided investors with 30 years of smarter beta.

Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Beijing, 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 @Russell_News.

Russell Investments is a Washington, USA Corporation, which operates through subsidiaries worldwide 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 the Russell Indexes.

Indexes are unmanaged and cannot be invested in directly. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Copyright 2014

CORP-9583

Contacts

for Russell Investments
Max Leitenberger, 914-434-5725
maxl@riverinc.com
or
Tim Benedict, 212-702-7823
TBenedict@russell.com

Contacts

for Russell Investments
Max Leitenberger, 914-434-5725
maxl@riverinc.com
or
Tim Benedict, 212-702-7823
TBenedict@russell.com