Russell Completes Annual Rebalancing of Global Indexes with Conclusion of Russell Indexes Reconstitution

  • Global equity market capitalization up 20% in past year, including a 25% increase in the U.S. market
  • Capitalization breakpoints significantly adjusted: Russell 2000 Index range at new all-time high.
  • Russell is the first major index provider to reclassify Greece as an emerging market.
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Russell Indexes: 2013 Reconstitution Recap

SEATTLE--()--Russell completed its closely-watched annual index reconstitution today at the close of the U.S. markets. Russell Indexes “rebalance day” is traditionally one of the most active and heavily anticipated trading days of the year as investors realign and rebalance their portfolios to match changes in the Russell Indexes. The Russell Indexes annual rebalancing, known as reconstitution, affects more than $600 billion in assets invested directly in products based on the Russell Indexes and is important for the $4.1 trillion in assets benchmarked to the Russell Indexes. Russell has posted its final lists of companies set to join or leave the U.S. broad-market Russell 3000® Index and Russell Microcap® Index as well as the Russell Global Index at the Russell reconstitution website. Final membership lists for the Russell Global, U.S. broad-market Russell 3000®, U.S. large-cap Russell 1000®, U.S. small-cap Russell 2000®, Russell Midcap® and Russell Microcap® Indexes will be available on Monday, July 1.

Results of this year’s index reconstitution reflect a significant increase in global equity market capitalization, particularly in the U.S. market. Total market cap for the Russell Global Index as of this year’s reconstitution is $53.3 trillion, up 20.1% from this point in 2012. This figure includes the Russell 3000 Index, representing 98% of the investable U.S. equity universe, which increased nearly 25% to $19.7 trillion. Strong global market performance in the past year, including new all-time highs for the Russell 1000, Russell 2000 and Russell 3000 Indexes as well as strong performance in Eurozone and frontier markets, significantly raised market capitalization hurdles determining membership in the Russell Indexes. Notably, the breakpoint separating the U.S. small-cap Russell 2000 Index from the U.S. large-cap Russell 1000 Index grew 30% to $2.6 billion, establishing a new all-time high for the index.

The majority of the additions (30 of 43) to the Russell 1000 Index at this year’s reconstitution graduated from the Russell 2000 Index. The three largest additions include Seadrill Limited, ING US Inc. and Pharmacyclics, Inc. Seadrill, the largest single addition to the Russell 1000 this year, with a market cap of $19 billion and a 0.09% weight within the Index, was reclassified as a U.S. company from Norway following Russell Indexes country assignment methodology. ING US Inc. entered the Index due to its recent IPO while Pharmacylics entered from the Russell 2000 Index.

Small-cap stocks helped drive U.S. market performance in the year leading to the 2013 reconstitution, returning 31.1% and outperforming large-cap U.S. stocks by nearly 3.5 percentage points. 171 stocks were added to the Russell 2000 Index this year, with American Realty Capital, Dynegy Inc. and Chambers Street Properties entering as the three largest additions. American Realty Capital graduated from the Russell Microcap Index, while Dynergy and Chambers Street Properties were new entrants to the Russell Indexes.

Financial Services remains the largest sector by weight at this year’s reconstitution as the top sector within the newly reconstituted Russell Global, Russell 1000 and Russell 2000 Indexes. Of the 806 new additions to the Russell Global Index this year, 180 were financial services companies, the most of any sector.

The Russell Global Index country gaining the most new companies is the U.S. (156) followed by Japan (108), Korea (69), China (49) and Thailand (39). Notably, three of the five countries gaining the most new additions are emerging markets. The performance of the Russell Emerging Markets Index (16.5%) lagged over the 12 month period ending May 31, 2013 relative to Developed (29%) and Frontier (26.9%) markets, despite strong contributions from the United Arab Emirates (71.6%), Turkey (57.7%) and Thailand (46%). Relatively weak performance from the more heavily weighted emerging markets BRIC countries Brazil (6.2%), Russia (10.8%), India (19.4%) and China (3.4%) negatively impacted the performance of the broader index.

In March, Russell Indexes became the first major index provider to announce it would reclassify Greece as an emerging market. That change became official today at the conclusion of reconstitution. While Greece’s equity performance over the past twelve months was strong, the economic and market risk associated with Greece as determined by Russell Indexes’ Market Risk Review process resulted in its reclassification.

The Market Risk Review process also showed the continuing impact of market restrictions on market access in China and India. In China, Russell research showed that transparency of financial information and foreign ownership limitations remain concerns for investors trying to track risk exposures. Regarding India, research indicated that burdensome registration and tax requirements have frustrated global investors, raising concerns that it may be difficult for global investors to replicate index exposures through the local market.

“Our annual reconstitution methodology ensures that the Russell Indexes accurately reflect the current makeup of the global equity markets to be an effective tool for multi-asset global investors,” said Rolf Agather, global head of index research and innovation at Russell. "Reconstitution is a cornerstone of our methodology, helping to ensure that Russell Indexes remains the index of choice for professional investors."

Agather and a team from Russell including Russell Indexes CEO Ron Bundy rang the Opening Bell at the NYSE and the Closing Bell at NASDAQ’s “MarketSite” today to celebrate reconstitution and also mark the 10th anniversary of NASDAQ’s Closing Cross, an electronic auction mechanism developed in 2004 for reconstitution to trade shares at a single closing price. About half of the stocks in the Russell 3000 index are listed on either the NASDAQ Stock Market or the NYSE. NYSE-listed stocks utilize NYSE’s auction mechanism at reconstitution.

The Russell Indexes reconstitution methodology has remained an industry standard since Russell introduced its first equity index in 1984 and Russell continues to enhance its reconstitution process each year. When measuring or investing in markets, global multi-asset investors rely on Russell Indexes to provide accurate and objective market representation. For nearly 30 years, Russell has drawn on its unique insight into 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.

In the video below, Agather provides a rundown on how reconstitution works, why it is significant for investors and some highlights from the year’s index rebalance. The video is also available on 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 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. Performance quoted represents past performance and does not guarantee future results.

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.

CORP-8619

Contacts

The Neibart Group
Davis MacMillan, 908-868-8064
indexes@neibartgroup.com
or
Russell Investments
Tim Benedict, 212-702-7823
TBenedict@russell.com
or
Alexandra Davis, 206-505-1858
aldavis@russell.com

Release Summary

Russell completed its annual index reconstitution today at the close of U.S. markets. Russell Indexes "rebalance day" is traditionally one of the most active and anticipated trading days of the year.

Contacts

The Neibart Group
Davis MacMillan, 908-868-8064
indexes@neibartgroup.com
or
Russell Investments
Tim Benedict, 212-702-7823
TBenedict@russell.com
or
Alexandra Davis, 206-505-1858
aldavis@russell.com