2015 Russell Reconstitution Update

Each June the Russell family of equity indexes are adjusted to reflect changes in the markets.  This annual process is commonly referred to as the Russell Reconstitution.   The Reconstitution occurs once a year in order to keep the cost associated with maintaining an index portfolio at a minimum or specifically to keep trading costs low.

We are now half way through the Russell Reconstitution with two of the four steps behind us.  The almost month long process begins on the last business day of May and ends on the last Friday of June.  This year the last business day of May was the 29th and based on closing prices global companies are ranked by market cap to form the preliminary global reconstitution portfolios.

The second step occurred last Friday June 12th with preliminary index additions and deletions being posted on the Russell Indexes website.  Some highlights from Friday’s posting include that Apple (AAPL) is largest constituent in the Russell 3000 with a market cap of over $750 billion.  This is a rise of over 37% from this time last year.   The total market cap for the Russell 3000 rose by 9% and is now tops $25 trillion dollars.  Finally, the breakpoint for inclusion in the Russell 1000 versus the Russell 2000 is $3.4 billion, up about 10% from the previous year.

The third step comes up this Friday with any updates to the June 12th release being shared after the close on June 19th.  The final step in the reconstitution process occurs on Friday June 26th when the newly reconstituted indexes take effect after the market close.  There will be several crossing trades that occur near the close on the 26th as portfolio managers charged with matching the performance of the Russell 1000, Russell 2000, or Russell 3000 rebalance their portfolios.  Despite about a 10% turnover in the stocks that make up these indexes, the market impact is minimal with the exception of extra volume occurring on the close.

For more on how the Russell 2000 and CBOE Russell 2000 Volatility Indexes behave around the reconstitution process visit http://www.cboeoptionshub.com/2015/06/09/russellrecon/

For updates on the Russell Reconstitution process or any other information regarding the family of Russell Indexes visit www.russell.com/indexes/