Russell's
family of global equity indexes, including the industry-leading
U.S. equity indexes (note that Russell uses "indexes" rather than
"indices"), allows investors to track the performance of distinct
market segments worldwide.
Many investors
use mutual funds or exchange-traded funds 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 innovative index design has led to more assets benchmarked
to its U.S. index family than all other U.S. equity indexes combined.
As of May 2007, Russell's indexes had US$4 trillion in assets
benchmarked to them and accounted for 52 percent of assets benchmarked
by institutional investors.
The main U.S.
index is the Russell 3000® Index, which is divided into
several sub-indexes, including the well-known small-cap Russell
2000® Index. The list of stocks in the Russell 3000 is compiled
by the Tacoma, Washington-based Russell Investment Group. 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.
History
Russell's
index story began in 1984 when the firm launched its family of
U.S. indexes 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 subcomponents
such as the small-cap Russell 2000 Index.
In January
2007, Russell applied its pioneering index methodology to the
world's equity markets and introduced a family of global indexes.
Similar to how the Russell 3000 captures nearly all of the U.S.
equity market, the Russell Global Index captures 98% of the global
equity market.
Today, the
Russell Global Index reflects the performance of nearly 11,000
stocks worldwide, including the Russell 3000 Index as its U.S.
component and the Russell/Nomura Total Market Index as the Japan
component.
Construction
Methodology
The Russell
Indexes are objectively constructed based on transparent rules.
The broadest U.S. Russell Index is the Russell 3000 Index which
contains the 4,000 largest (by market capitalization) companies
incorporated in the U.S., plus (beginning with the 2007 reconstitution)
companies incorported in an offshore financial center that have
their headquarters in the U.S. - a so-called Benefits driven incorporation.
Each Russell Index is a subset of the Russell 3000 Index and broken
down by market capitalization and style. The members of the Russell
3000 Index and its subsets are determined each year during annual
reconstitution and enhanced quarterly with the addition of Initial
Public Offerings (IPOs). The Russell 3000 Index represents approximately
99 percent of the U.S. equity market. Russell excludes stocks
trading below US$1; stocks that trade on the pink sheets and OTC
Bulletin Board; closed-end mutual funds, limited partnerships,
and royalty trusts; and non-U.S. incorporated stocks (other than
the benefits driven incorporations described above), foreign stocks,
and American Depositary Receipts (ADRs). Also, Berkshire Hathaway
is excluded despite its large market capitalization because its
high price per share limits its liquidity.
Annual
Reconstitution
Russell rebalances
its indexes once each year in June, called reconstitution. The
reconstitution consists of updating the global list of investable
stocks and assigning them to the appropriate indexes. 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.
Primary
Indexes
In addition
to the primary indexes 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 indexes are:
- Russell
3000 Index: The broad U.S. stock market, including both large
and small capitalization companies.
- Russell
1000 Index: The large-cap index of the top 1,000 stocks in the
Russell 3000 Index.
- Russell
2000 Index: The small-cap index of the bottom 2,000 stocks in
the Russell 3000.
- Russell
Top 200 Index: The mega-cap index of the very largest 200 stocks
in the Russell 3000.
- Russell
Top 50 Index: 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.
- Russell
2500 Index: A mid- to small-cap index of the bottom 2,500 stocks
in the Russell 3000.
- Russell
Microcap Index: A micro-cap index of the stocks ranked from
2,001-4,000 in the Russell indexing universe, consisting of
capitalizations ranging from $50 million to $2.5 billion. Hence,
this is an index of the 1,000 smallest Russell 3000 stocks,
plus 1,000 smaller stocks.
- Russell
Small-Cap Completeness Index: The index includes stocks from
the Russell 3000 Index that do not appear in the S&P 500 Index. An investor wishing to use the Russell
3000 Index as a measure of exposure to the complete U.S. stock
market who wishes to use the S&P 500 Index rather than the
Russell 1000 Index as a way of getting exposure to large-cap
companies can combine the S&P 500 Index with the Russell
Small Cap Completeness Index to get the Russell 3000 Index.
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