FTSE Russell’s upcoming annual reconstitution is set to bring more diversification to its U.S. indices as the tech sector’s shine dims slightly and other sectors move up the ranks.
The global index provider is set to rebalance the Russell U.S. Indexes after markets close on June 27, with semi-annual reconstitutions to take place beginning next year.
Roughly $10.6 trillion in investor assets are benchmarked to, or invested in, products based on the Russell U.S. Indexes, including the Russell 1000, Russell 2000 and Russell 3000 indices, according to FTSE Russell. (All figures are in U.S. dollars.)
The index provider periodically revises the indices to ensure they provide an accurate representation of the U.S. equity market’s composition and performance.
This means reshuffling, adding to and removing securities from the indices.
Companies must meet certain criteria to be considered for inclusion in the Russell U.S. Indexes, including being listed on a U.S. exchange, having a total market capitalization of at least $30 million and having stock that trades at $1 or higher on FTSE Russell’s so-called rank day, which fell on April 30 this year.
The Russell reconstitution typically results in one of the highest trading volume days of the year. The firm said a record of nearly $220 billion was traded across U.S. exchanges when the 2024 reconstitution took effect.
Why a semi-annual reconstitution?
When the Russell indices were launched in 1984, they were rebalanced quarterly. That switched to a semi-annual frequency in 1987 and then to an annual frequency in 1989. Since then, the Russell reconstitution has been done on an annual basis, falling on the fourth Friday of June.
Beginning in 2026, the indices will be rebalanced on a semi-annual basis, with rebalancing continuing on the fourth Friday in June as well as the second Friday in November.
Russell U.S. Style Indexes, however, will continue to be completely rebalanced every June but can incorporate new additions and membership changes in November.
FTSE Russell has said the semi-annual reconstitution schedule will allow it to better align its indices with the “dynamic nature” of the U.S. equity markets, which have experienced increased volatility in recent years, especially over the past few months as a result of U.S. trade policies.
This year’s reconstitution
FTSE Russell released its preliminary reconstitution portfolio for the Russell U.S. Indexes on May 23, with more updates to come each week until reconstitution day.
Of note, companies in the health care, financials, industrials and consumer discretionary industries largely dominate additions to the indices this year.
Based on FTSE Russell’s preliminary results, 36 companies are expected to be added to the Russell 1000, 19 of which are moving up from the Russell 2000.
Seven of these anticipated Russell 1000 entrants are classified as companies in the industrials sector, six are in health care, and five each are in the financials, technology and consumer discretionary sectors. Other companies anticipated to join the index are in the basic materials, consumer staples, telecommunications and utilities sectors.
As well, two health-care company IPOs and 242 companies are expected to be added to the Russell 2000, with 25 moving down from the Russell 1000 and 133 moving up from the Russell Microcap Index. Most of the companies being added to the index are in the financials, health care and consumer discretionary sectors.
Total U.S. equity market capitalization of the broad-market Russell 3000 was up 10% to $58.4 trillion, based on April 30 market data.
Meanwhile, the Magnificent Seven companies saw their total company market capitalization increase by 13.5% to $15 trillion on an annual basis. Tesla Inc. saw the highest increase, while Alphabet Inc.’s market cap declined.
Also of note, Apple Inc. topped the leaderboard in the Russell 3000 and Russell 1000 indices, reclaiming the spot from Microsoft Corp. and returning to a position it last held from 2021 to 2023. Apple was the only company to exceed $3 trillion on rank day, or April 30.
Another highlight from the preliminary results was that the market cap breakpoints — or the gap in market capitalization between U.S. small caps in the Russell 2000 and large caps in the Russell 1000 — held steady at $4.6 billion.