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The 32nd-annual rebalancing of the FTSE Russell U.S. indexes, which concludes this week, is expected to result in record trading volumes. The event also highlights market trends.

With more than 10,000 publicly traded companies in the U.S., the market’s size and composition change continually. The changes are reflected each June when Russell realigns its U.S. indexes.

Catherine Yoshimoto, director of product management at FTSE Russell in Seattle, described the “reconstitution” as a transparent, objective process. “We’re here to capture the market,” she said.

That’s important, as the changes will affect more than “$9 trillion in assets total benchmarked and over $1 trillion in passive assets,” Yoshimoto said (all figures are in U.S. dollars).

Reconstitution traditionally concludes one of the highest trading volume days of the year on major U.S. equity exchanges.

At the close of last year’s reconstitution, $100 billion in trades had occurred across the exchanges, Yoshimoto said.

A greater volume is expected this year because of index changes required to reflect market volatility.

The big get bigger

The rebalancing highlights a notable divergence between the large and small ends of the U.S. equity market.

The market capitalization breakpoint that separates companies in the U.S. large-cap Russell 1000 from those in the U.S. small-cap Russell 2000 decreased by more than 16% this year to $3 billion.

And, for the first time since 2009, the smallest stock in the Russell 3000 had less than $100 million in market capitalization (Louisville, Ky.–based Limestone Bancorp).

In contrast, the large end of the equity market exhibited significant growth, with market capitalization of the 10 largest U.S. stocks up more than 23%.

For the first time, a company on a Russell U.S. index exceeded $1-trillion in total market capitalization  — in fact, three companies achieved that milestone (Microsoft, Apple and Amazon).

“The large caps seem to be getting bigger, and the small caps are feeling some of the pressure,” Yoshimoto said.

The trend may reflect investors gravitating toward large caps in the midst of economic uncertainty. Also, “growth tends to be correlated with quality,” she said.

Tech dominates

Tech companies continue to dominate the Russell 3000 (which comprises the Russell 1000 and 2000).

Microsoft retained its spot as the largest company in the index for the second year, with an almost 44% increase in total market capitalization.

Apple was second after a roughly 48% rise in market capitalization in the last year, switching spots with Amazon, which increased about 28%. Alphabet (parent of Google) and Facebook rounded out the five largest companies (the same five as last year).

New tech additions to the Russell 3000 reflected the working-from-home trend as a result of the pandemic.

These included San Jose, Calif.–based Zoom Video Communications, San Francisco–based Pinterest and London, U.K.–based Mimecast, an IT security company.

Only six IPOs entered the Russell 3000, compared to 30 last year and 22 in 2018. They’re all healthcare companies.

Growth outperforms value

A continuing trend is that of growth outperforming value across all major capitalization tiers.

Zoom, Ohio-based Cardinal Health and New York–based Datadog, which provides cloud monitoring services, were all assigned 100% growth, and will join the Russell 1000 Growth Index.

The largest addition to the Russell 1000 Value Index this year by size was Alphabet, as it shifts from 100% Growth to partial Value. The largest addition by weight was San Jose-Calif.–based Cisco Systems. The tech conglomerate shifts from 100% Growth to 100% Value.

Final index membership lists will be published on June 29, when the balancing officially takes effect.