SEATTLE--(BUSINESS WIRE)--Russell today announced the 2014 schedule for its annual index reconstitution process, which is designed to capture and reflect global equity market shifts in the past year to ensure that multi-asset investors continue to have the most accurate proxy for global markets.
One important change at this year’s reconstitution is that country constituent Egypt will be reclassified from an emerging to a frontier market country. This conclusion by Russell Indexes results from a three-year market risk review process, as prescribed by Russell’s index methodology, in which Egypt did not meet macro- and operational risk criteria for emerging market status, but did meet classification for inclusion in frontier markets. Russell Index country classifications are announced each year in March and any changes become effective at the conclusion of the annual index reconstitution process in late June.
“Egypt’s reclassification is guided by the rules-based, objective and transparent methodology of the Russell Global Indexes,” said Russell senior index research analyst Mat Lystra. “Egypt’s political risk has risen steadily since the 2011 revolution and, in order to manage the availability of foreign currency reserves in short supply since the Arab Spring, the country has enacted currency controls, creating a major barrier to efficient trading in the market. Having a clear road map to follow and the global resources to carry out extensive, objective evaluation gives us confidence that Egypt has been accurately evaluated against the same risk and efficiency criteria among all countries in our family of global indexes.”
The Russell Index reconstitution process includes an intensive review of numerous market factors, as outlined in the Russell Index methodology, to recalibrate the indexes each year to reflect current market conditions. As part of the reconstitution, Russell Indexes analyzes risk factors and country classifications as part of a dynamic, long-term market risk review process designed to identify material changes to the risk and investability of countries included in the Russell family of global indexes. While reclassifications are rare, they do occur if a country no longer meets the criteria for its current classification. It takes three years of sustained changes in economic criteria for a country to be reclassified. A frontier market might advance to emerging or developed status, while a developed or emerging market can shift to emerging or frontier. Russell’s index methodology requires developed markets, in general, to be the least risky and most efficient in which to trade, with emerging and frontier markets progressively more risky and least efficient along the spectrum.
According to its transparent, rules-based process, Russell will post lists of preliminary additions and deletions to the Russell Global Index, U.S. broad market Russell 3000® Index and Russell Microcap® Index on its website after the U.S. market close on Friday, June 13, 2014. Updated lists, if necessary, will be posted at the same location after market close on June 20 and June 27. Membership changes to Russell’s entire family of global market indexes, including any country reclassifications, take effect at the close of markets on Friday, June 27.
Lystra provides more background on the analysis which led to the reclassification of Egypt to a frontier market and other global country classification developments for Russell Indexes in a new paper available on the Russell Indexes website.
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