Russell Indexes

The Russell Indexes are a family of global equity indices that allow investors to track the performance of distinct market segments worldwide. Many investors use mutual funds or exchange-traded funds based on the Russell Indexes as a way of gaining exposure to certain portions of the U.S. stock market. Additionally, many investment managers use the Russell Indexes as benchmarks to measure their own performance. Russell's index design has led to more assets benchmarked to its U.S. index family than all other U.S. equity indexes combined.

The most well known index of the series is the Russell 2000 which track US small-cap stocks and is made up of the bottom 2,000 stocks in the Russell 3000 index.

History

Seattle, Washington-based Russell's index began in 1984 when the firm launched its family of U.S. indices to measure U.S. market segments and hence better track the performance of investment managers. The resulting methodology produced the broad-market Russell 3000 Index and sub-components such as the small-cap Russell 2000 Index. The broad-market U.S. index is the Russell 3000 Index, which is divided into several sub-indexes, including the small-cap Russell 2000 Index. Using a rules-based and transparent process, Russell forms its indexes by listing all companies in descending order by market capitalization adjusted for float, which is the actual number of shares available for trading. In the United States, the top 3,000 stocks (those of the 3,000 largest companies) make up the broad-market Russell 3000 Index. The top 1,000 of those companies make up the large-cap Russell 1000 Index, and the bottom 2,000 (the smallest companies) make up the small-cap Russell 2000 Index.

Construction methodology

The Russell Indexes are objectively constructed based on transparent rules. The broadest U.S. Russell Index is the Russell 3000E Index which contains the 4,000 largest (by market capitalization) companies incorporated in the U.S., plus (beginning with the 2007 reconstitution) companies incorporated in an offshore financial center that have their headquarters in the U.S.; a so-called "benefits-driven incorporation". If 4,000 eligible securities do not exist in the U.S. market, the entire eligible set is included. Each Russell Index is a subset of the Russell 3000E Index and broken down by market capitalization and style. The members of the Russell 3000E Index and its subsets are determined each year during annual reconstitution and enhanced quarterly with the addition of initial public offerings (IPOs). The Russell 3000E Index represents approximately 99 percent of the U.S. equity market. Russell excludes stocks trading below $1, stocks that trade on the pink sheets and OTC Bulletin Board, closed-end mutual funds, limited partnerships, royalty trusts, non-U.S. incorporated stocks (other than the benefits driven incorporations described above), foreign stocks, and American Depositary Receipts (ADRs).

Annual reconstitution

Russell rebalances its indices once each year in June, called "reconstitution". The reconstitution consists of updating the global list of investable stocks and assigning them to the appropriate indices. The Russell indexes do not immediately replace a company that merges with another firm or has its stock delisted. However, Russell adds Initial Public Offerings (IPOs) on a quarterly basis, capturing these stocks in a systematic way.

Abnormal trading volumes caused by index fund managers re-balancing their portfolios has a history of significant market impact during the last few seconds before the New York Stock Exchange and NASDAQ closing prices are determined.[1]

The index rebalance is typically scheduled for the closing price on the last Friday in June.[2] The 2010 index rebalance occurred June 25th.

Primary indices

In addition to the primary indices listed below, Russell publishes Value and Growth versions of each U.S. index. This divides each index roughly in half, separating companies classified as value stocks from those classified as growth stocks. Companies can appear in both the value and growth versions of an index, though the total number of shares between the value and growth versions will equal the number in the main index. The primary indices are:

Russell indices in Japan

Russell/Nomura equity indices for Japan (calculated with Nomura Securities Co., Ltd.) offer broad market or style benchmarks for investors in that country. These pioneering, comprehensive, equity style indices offer free-float adjustment in the Japanese market.

Investing

There are numerous asset managers that offer ETFs which attempt to replicate the movement of Russell Indexes in a combination of ways as listed below:

Index

Index inverse

Sector

Index leveraged 200%

Index inverse leveraged 200%

Sector leveraged 200%

Sector inverse leveraged 200%

Index leveraged 300%

Index inverse leveraged 300%

Sector leveraged 300%

Sector inverse leveraged 300%

See also

References

  1. ↑ http://ir.nasdaq.com/releasedetail.cfm?ReleaseID=392369
  2. ↑ http://www.russell.com/News/Press_Releases/PR20100302_Indexes.asp
  3. ↑ http://www.russell.com/indexes/data/fact_sheets/us/russell_3000_index.asp

External links