Russell Indexes
Encyclopedia
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 fund
s 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. As of June 2008, Russell's indexes had $4.0 trillion in assets benchmarked to them and accounted for 63.3 percent of assets benchmarked by institutional investors.
-based Russell's index story 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.
) 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 trust
s, non-U.S. incorporated stocks (other than the benefits driven incorporations described above), foreign stocks, and American Depositary Receipt
s (ADRs).
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.
The index rebalance is typically scheduled for the closing price on the last Friday in June. The 2010 index rebalance occurred June 25th.
(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.
which attempt to replicate the movement of Russell Indexes in a combination of ways as listed below:
Exchange-traded fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
s based on the Russell Indexes as a way of gaining exposure to certain portions of the U.S. stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
. 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. As of June 2008, Russell's indexes had $4.0 trillion in assets benchmarked to them and accounted for 63.3 percent of assets benchmarked by institutional investors.
History
Tacoma, WashingtonTacoma, Washington
Tacoma is a mid-sized urban port city and the county seat of Pierce County, Washington, United States. The city is on Washington's Puget Sound, southwest of Seattle, northeast of the state capital, Olympia, and northwest of Mount Rainier National Park. The population was 198,397, according to...
-based Russell's index story 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
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
adjusted for float
Public float
The float of a company whose stock is publicly traded has different default meanings depending on the presumed context.Without a qualifier it may refer to the entire market capitalization of the company or only its publicly traded equity....
, 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 capitalizationMarket capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
) 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
Pink Sheets
OTC Markets Group, Inc., informally known as "Pink Sheets", is a private company that provides services to the U.S. over-the-counter securities market including electronic quotations, trading, messaging, and information platforms. According to the U.S. Securities and Exchange Commission, OTC...
and OTC Bulletin Board
OTC Bulletin Board
The OTC Bulletin Board or OTCBB is an interdealer electronic quotation system in the United States that displays real-time quotes, last-sale prices, and volume information for many over-the-counter equity securities that are not listed on the NASDAQ stock exchange or a national securities exchange...
, closed-end mutual funds, limited partnerships, royalty trust
Royalty trust
A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high percentage of profits are distributed to shareholders...
s, non-U.S. incorporated stocks (other than the benefits driven incorporations described above), foreign stocks, and American Depositary Receipt
American Depositary Receipt
An American depositary receipt is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the US financial markets...
s (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
Index fund
An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.-Tracking:Tracking can be achieved by trying to hold all of the...
managers re-balancing their portfolios has a history of significant market impact
Market impact
In financial markets, market impact is the effect that a market participant has when it buys or sells an asset. It is the extent to which the buying or selling moves the price against the buyer or seller, i.e. upward when buying and downward when selling...
during the last few seconds before the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
and NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
closing prices are determined.
The index rebalance is typically scheduled for the closing price on the last Friday in June. 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 3000 Index: The large-cap index of the top 3,000 stocks in the Russell 3000 Index.
- Russell 2500 IndexRussell 2500 IndexThe Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, or about 19% of its total capitalization. Weighted average capitalization is approximately $2 billion and median capitalization is $705.8 million. The largest company in the index is $4.5...
: A mid-cap to small-cap index of the bottom 2,500 stocks in the Russell 3000 Index. - Russell 2000 Index: The small-cap benchmark index of the bottom 2,000 stocks in the Russell 3000 Index.
- Russell 1000 Index: The large-cap index of the top 1,000 stocks in the Russell 3000 Index.
- Russell Top 200 IndexRussell Top 200 IndexThe Russell Top 200 Index measures the performance of the 200 largest companies in the Russell 1000 Index, with weighted average market capitalization of $110.5 billion...
: The mega-cap index of the very largest 200 stocks in the Russell 3000 Index. - Russell Top 50 IndexRussell Top 50 IndexThe Russell Top 50 Index measures the performance of the largest companies in the Russell 3000 Index. It includes approximately 50 of the largest securities based on a combination of their market cap and current index membership and represents approximately 40% of the total market capitalization of...
: Measures the performance of the 50 largest companies in the Russell 3000 Index. - Russell Midcap Index: The bottom 800 stocks in the Russell 1000 Index. The Russell Top 200 Index plus the Russell Midcap Index yields the Russell 1000 Index.
- Russell Microcap IndexRussell Microcap IndexThe Russell Microcap Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market...
: A micro-cap index of the stocks ranked from 2,001-4,000 in the Russell indexing universe, consisting of capitalizations ranging from about $50 million to $2.5 billion. Hence, this is an index of the 1,000 smallest Russell 3000 stocks, plus the 1,000 smaller stocks. - Russell Small Cap Completeness IndexRussell Small Cap Completeness IndexThe Russell Small Cap Completeness Index measures the performance of the companies in the Russell 3000 Index excluding the companies in the S&P 500 Index. It provides a performance standard for active money managers seeking a liquid extended benchmark, and can be used for a passive investment...
: The index includes stocks from the Russell 3000 Index that do not appear in the S&P 500S&P 500The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
Index. The Index measures the performance of the Russell 3000 companies excluding S&P 500 constituents.
Russell indices in Japan
Russell/Nomura equity indices for JapanJapan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
(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 ETFsExchange-traded fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
which attempt to replicate the movement of Russell Indexes in a combination of ways as listed below:
Index
- Russell 1000
- Russell 2000
- Russell 3000
- Russell Midcap
- Russell Microcap
- Russell Top 50
Sector
- Russell 1000 Growth
- Russell 1000 Value
- Russell 2000 Value
- Russell 2000 Growth
- Russell 3000 Value
- Russell 3000 Growth
- Russell Midcap Growth
- Russell Midcap Value
- Russell/Nomura Small Cap Japan ETF
- Russell/Nomura PRIME Japan ETF
Index leveraged 200%
- Russell 2000
- Russell 2000
- Russell 3000
Index inverse leveraged 200%
- Russell 2000
- Russell 2000
- Russell 3000
Sector leveraged 200%
- Russell 1000 Value
- Russell 1000 Growth
- Russell 2000 Value
- Russell 2000 Growth
- Russell Midcap Value
- Russell Midcap Growth
Sector inverse leveraged 200%
- Russell 1000 Value
- Russell 1000 Growth
- Russell 2000 Value
- Russell 2000 Growth
- Russell Midcap Value
- Russell Midcap Growth
Index leveraged 300%
- Russell 1000
- Russell 2000
- Russell Midcap
Index inverse leveraged 300%
- Russell 1000
- Russell 2000
- Russell Midcap
Sector leveraged 300%
- Russell 1000 Energy
- Russell 1000 Financial
- Russell 1000 Technology
Sector inverse leveraged 300%
- Russell 1000 Energy
- Russell 1000 Financial (Chart of base index, not tradable)
- Russell 1000 Technology
See also
- Russell Investments
- Russell 3000 Index
- Russell 2500 IndexRussell 2500 IndexThe Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, or about 19% of its total capitalization. Weighted average capitalization is approximately $2 billion and median capitalization is $705.8 million. The largest company in the index is $4.5...
- Russell 2000 Index
- Russell 1000 Index
- Russell Top 200 IndexRussell Top 200 IndexThe Russell Top 200 Index measures the performance of the 200 largest companies in the Russell 1000 Index, with weighted average market capitalization of $110.5 billion...
- Russell Top 50 IndexRussell Top 50 IndexThe Russell Top 50 Index measures the performance of the largest companies in the Russell 3000 Index. It includes approximately 50 of the largest securities based on a combination of their market cap and current index membership and represents approximately 40% of the total market capitalization of...
- Russell Midcap Index
- Russell Microcap IndexRussell Microcap IndexThe Russell Microcap Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market...
- Russell Small Cap Completeness IndexRussell Small Cap Completeness IndexThe Russell Small Cap Completeness Index measures the performance of the companies in the Russell 3000 Index excluding the companies in the S&P 500 Index. It provides a performance standard for active money managers seeking a liquid extended benchmark, and can be used for a passive investment...