On Friday, June 27, we will see the final annual Russell restructuring, which switchs to restructuring twice a year before the index provider. We have covered earlier, usually, Russell Reorganization Day is the largest bandh of the year. Last year, there was no different – on June 28, 2024, in the closing moments of trading, NASDAQ and New York Stock Exchange traded at US stocks $ 220 billion.
It is likely that tomorrow we will look at the trade of $ 200 billion from about $ 200 billion as index tracking funds Russell buy US index and sell deletion. FTSE estimates that Russell Index has an estimated $ 2 trillion for $ 2 trillion with $ 2 trillion.
With sufficient amounts of dollar tracking, Russell is quite important for index companies and mutual funds. Russell is a major American market benchmark made of 3000 index (Russell 2000 Small-Cap Index and Russell 1000 Large-CAP index). Companies involved in the index have a solid basis of high turnover, low business costs and long -term institutional investors through index tracking funds.
A Russell is happening in the US index
According to Russell, this year, 228 companies are being added to the Russell 3000 index. The reorganization process began on April 30, with rank day or day, on the day the index provider was evaluated which companies are eligible for which index.
Table 1 shows that Russell should be added to each company in the US index universe.
After determining the eligible securities using the above rules, FTSE Russell assigns them 1000, 2000, 3000 and 3000E (the largest 4000 eligible 4000 characters in the US stock) index on the basis of market cap rank.
This year:
- Russell 2000 There will be 211 additions and 155 deleters. Notable additions include CRSP, Xene, Geni and INDV. Overall, there will also be 44 migrations between Russell 1000 and 2000.
- Russell 1000 There will be 18 additions and no deletion. The additions include flute, flex, TLN and TEM. The smallest addition of this year is KRMN with a market cap of $ 6.2 billion. Interestingly, eight couples have been included outside the US – six headquarters are outside the US, and five are both included abroad and are headquarters.
Not all American companies are included and headquarters in states
There are about 200 Russell components which are outside the US and about 130 headquarters abroad. Chart 1 Russell shows the percentage of “foreign” companies in the 3000 index.
Chart 1: “Non-US” Russell 3000 component
Although this can be surprising for an index that benchmark the US market, FTSE Russell has a clear rules for evaluating the “foreign” listing to ensure that they are representatives of the American market.
First, a company Sure The US exchange with SEC and must be listed on the file. But when a country has a dual foreign listing, or offshore incorporation, or headquarters in another country, Russell sees other data to see if the company looks American:
- First, they look for 20% more assets in the US than any other country.
- If it is not a report or indecision, they seek 20% more revenue coming from the US than in any other country.
- And if it is not decisive, there are more tests (call us for details).
It can be complicated, but one thing that makes Russell different from S&P is that it is a rule-based (not subjective).
Also good for companies
Importantly, in addition to a popular American index, it is good for companies. This provides new index investors, which are usually long -term holders. This increases the demand for shares by active institutional investors that will be low weight in newly pairs of stocks.
These are these index funds that trade on the date of restructuring, mainly because their investors expect very little tracking error, requiring the fund closely matching the index changes. In Chart 2, we use the market on near trades and use eco prints to estimate a behavior on how many shares actually trading on ribblance Day by index tracking funds.
- Large cap Russell 1000 and S&P 500 can be 21% of his float organized by the index tracking funds, if it also has up to 28% in NASDAQ-100®.
- Small letter Russell 2000 can be 10% of their float organized by trekking funds, even if they are in S&P 600 to 27%.
Chart 2: Index Tracking Fund can own about 25% float shares in many companies
Because the index joint increases the demand for active funds, hedge funds and other liquidity provider, we see the liquidity growing overall after the long time of the index joint. In Chart 3, we see an increase in the liquidity of the new Russell 2000 index additions, five months before restructuring. The increase in liquidity before restructuring is responsible for a popular trade for hedge funds – buy index additions before reorganization and sell them in index funds.
More importantly, the liquidity remains high after restructuring, showing the increasing demand for a long period. There is some possibility that active funds like Closet Indexers come from trading, but in addition to the index, the company benefits from low information disparity about their stock, and promoting pre -reorganization liquidity leads to low cost of capital. In addition, increase in demand from index buyers can also increase the price of stock.
Chart 3: Russell increases the liquidity months before the reorganization and later remains high.
Improves long -term liquidity reduces the cost of trading in a stock, makes it easier for companies to raise capital, and intensify for investors to complete large trades.
Semi-annual Russell Reorganization
In 2026, Russell US Index is restructuring twice a year in June and November. The new structure will be restructured:
- Russell US Size Index And Russell US Style sequences last Friday in June.
- Only Russell US size sequences the second Friday in November.
Change gives companies a chance to include twice a year instead of once, a welcome update for issuers is expected to go to an index. It is likely that the restructuring of November will be smaller than June, but we will see how the change is the day of Russell Reorganization affects the trading volume.
