Annual Russell US Indexes reconstitution begins with posting of projected additions and deletions
— US stocks return to 2015 levels on post-US election rally
— Apple, Alphabet and Microsoft lead technology surge while ExxonMobil decline reflects a tough year for energy stocks
— Apple returns to 100% growth orientation, reflecting broad shift from value to growth in 2017 across major cap tiers
Today, FTSE Russell posted its official preliminary lists of companies set to enter or leave the US broad-market Russell 3000® Index and the Russell Microcap® Index when the Russell US Indexes undergo their annual rebalance after US markets close on Friday, June 23. The lists of projected additions and deletions for the Russell US Indexes are now available on the FTSE Russell website.
Each June, the entire family of Russell US Indexes are realigned and recalibrated to reflect market changes in the past year. Approximately $8.5 trillion* in assets are benchmarked to or invested in products based on the Russell US Indexes, underscoring the importance of reconstitution to the market. And approximately $12.5 trillion* in assets are currently benchmarked to indexes offered by global index provider FTSE Russell.
Ron Bundy, CEO, Benchmarks – North America, FTSE Russell, said:
“We are excited to enter another annual reconstitution process for the Russell US Indexes. It is a significant event for the US equity market, closely watched by market participants and a central part of maintaining the integrity and relevance of our leading set of US benchmarks.”
A Tale of Two Markets: US equities ride the “Trump Bump” back to 2015 levels.
“It was a tale of two markets this year in US equities as reflected by the Russell US Indexes,” said FTSE Russell senior index research analyst Mat Lystra. “The market exhibited strong growth in the past year, yet the lion’s share of the growth came after the US presidential election in November.”
The broad US equity market, as reflected by the Russell 3000 Index, grew in size during the period since 2016 reconstitution, with total market capitalization increasing nearly 13% to $27.2 trillion at this year’s rank date (May 12, 2017). In total, 196 companies will be added to the Russell 3000 this year; 115 are moving up from the Russell Microcap Index, 54 are new additions to the index and 27 are IPOs. The sectors absorbing the most new companies joining the Russell US Indexes this year are Financial Services (53), Health Care (37) and Technology (30).
The breakpoint between the US large-cap Russell 1000 Index and the US small-cap Russell 2000® Index is expected to reach $3.4 billion this year. This represents a 17% increase over 2016 and is nearly equal to the breakpoint from two years ago.
From June 27, 2016, the first day of the newly reconstituted Russell US Indexes, through May 12 rank day for this year’s Russell US Indexes reconstitution, the Russell 1000® Index (US large-cap) and Russell 2000 Index (US small-cap) recorded returns of 19.6% and 24.2%, respectively, with 13.5% and 16.8% coming after the US presidential election on November 8.
Technology highs and energy lows.
The Technology sector has helped drive US large and small cap stock performance since last Russell US Indexes reconstitution. Technology (+35.6%) was the highest performing US large cap sector. US small-caps stocks have also been driven by technology names in the last year. Technology (+38.2%) was the highest performing sector in the Russell 2000 Index, followed by Materials & Processing (+27.2%) and Producer Durables (+21.4%).
Apple Inc. (NASDAQ: AAPL) retains its position as the largest of the top ten Russell US Indexes constituents by market capitalization, with its size expanding 48.1% since 2016. Apple’s total market capitalization stood at nearly $814 billion on May 12, 2017, continuing its now five year run as the largest US stock.
Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) retain number two and three spots, respectively, in the Russell US indexes’ top ten while Amazon (NASDAQ: AMZN) and Facebook, Inc. (NASDAQ: FB) are expected to move into the top five for the first time.
ExxonMobil Corp (NYSE: XOM) was the only stock among the ten largest US companies to shrink since last year’s Russell US Indexes reconstitution, with its total market cap down by 6.3% in a year in which the Energy sector’s return was (-1.6%) in the Russell 1000 Index. The Energy sector was also the only sector to record a negative return in the Russell 2000 Index, with a return of (-1.3%).
Post-election growth shift.
Apple increased its growth orientation since last year’s Russell reconstitution, shifting from 91.6% growth and 8.4% value to an expected 100% growth orientation, returning to its pre-2016 allocation.
This growth shift for the largest US stock has helped set the tone for a broader US equity market transition this year from value to growth. In 2017 year-to-date through May 12 rank day, the Russell 1000 Growth Index’s return was 12.4% relative to a 2.7% return for the Russell 1000 Value Index. And the Russell 2000 Growth Index’s return was 6.8% in 2017 relative to a negative return of (-1.7%) for the Russell 2000 Value Index.
No SNAP decision.
FTSE Russell has made a number of updates to its Russell US Indexes reconstitution process this year as part of an ongoing initiative to align FTSE Russell indexes. Since the combination of the two index providers in 2015, the goal has been to gradually bring their index families together to bring greater consistency and efficiency to clients.
Notably, rank date, the date used to determine Russell US Indexes membership, usually in late May, was on Friday, May 12 this year to facilitate the scheduled June alignment of shares outstanding and free float across the FTSE and Russell indexes. Russell global indexes will not be realigned at this year’s Russell US Indexes reconstitution so they can synchronize with the FTSE indexes in the coming year.
FTSE Russell announced in April that it intends to conduct a full market consultation to analyze and assess the impact of admitting companies that attach no voting rights to their offered share classes such as SNAP Inc. (NYSE: SNAP) into the Russell indexes. The analysis, which will include a consultation with index users and other stakeholders, is expected to conclude in July.
The preliminary lists of additions and deletions are the first public step in the annual reconstitution process for the Russell US Indexes. Any updates to the lists will be posted to the FTSE Russell website on June 16 and 23. The closely watched final index membership lists, with breakouts for the Russell 1000 Index, the Russell 2000 Index and the Russell Midcap Index, will be posted on Monday June 26 when the new indexes begin operating.
To complete this year's Russell US Indexes reconstitution, FTSE Russell uses primary exchange closing prices from NYSE and NASDAQ. About half of the stocks in the broad market Russell 3000 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 23. This year, FTSE Russell will join NASDAQ and other special guests for a special closing bell ceremony at the Nasdaq Market Site in New York’s Times Square on Friday, June 23 to mark the completion of this year’s Russell US Indexes reconstitution.
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Notes to editors:
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*Source: Data as of December 31, 2016 as reported on March 31, 2017 by eVestment for institutional assets, Morningstar for retail mutual funds, insurance products, and ETFs, and additional passive assets directly collected by FTSE Russell. AUM data includes blended benchmarks and excludes futures and options. Passive assets directly collected by FTSE Russell have been removed from third party sources to prevent double counting. No assurances are given by FTSE Russell as to the accuracy of the data.
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