Thoughts On Upcoming Russell 1000 Rebalancing And Weekly Chartology
While David Kostin's increase of his EPS outlook for 2010 last week may now seem a little "naive" at best, that doesn't mean that his crew of analysts doesn't have good insights into the market now and then. In the most recent weekly recap piece, Kostin suggests "portfolio managers should focus on expected changes to sector and constituent weightings in the Russell 1000 growth and value style benchmarks at the end of June." Hopefully this analysis performs a little better than Kostin's other 2010 recommendations: "Our recommended sector weightings have generated -23 bps of alpha YTD." Well, at least Goldman is good at generating beta.
Here are Kostin's Russell rebalancing recommendations, focusing on the rotation of BRK into the index:
The annual rebalance of Russell indexes will occur on June 25, 2010. A change in membership inclusion criteria will result in more constituent changes to the Russell 1000 Index than last year and significant changes to the weightings of important constituents in the growth and value benchmarks. We highlight for portfolio managers key changes that the Goldman Sachs Securities Division expects will take place at the end of June.
Russell 1000 Index changes: We expect Berkshire Hathaway will enter the index with a prospective 105 bp allocation and boost the Financials sector weighting to 17.6% from 16.6% (see Exhibit 1). Consumer Discretionary and Consumer Staples are likely to see sector weights decline the most.
Russell 1000 Growth and Value sector and constituent changes: We expect style-based portfolio managers will adjust their holdings in response to large anticipated changes in sector weightings (see Exhibits 2 and 3). Although the net change in sector weightings to the overall Russell 1000 index should be modest, many large companies will be re-classified and these adjustments will have important implications for the Growth and Value style benchmarks. Some companies will move completely from Growth to Value (AMGN, BIIB, BTU) and others will go from Value to Growth (F, EOG, ITW, HAL, AMAT and WYNN). Many other companies will experience shifts in their blended weightings between the two indices. See page 3 for the expected changes in company index weights.
Full presentation of this week's pretty summary charts from Goldman. Little point commenting on any of the firm's projections as they will certainly all be wrong by the end of the year.