Russell Rebalance Looms - Goldman Forecasts Who's In, Who's Out

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by Tyler Durden
Monday, Jun 14, 2021 - 05:45 AM

FTSE Russell recently announced this year’s annual Russell Index rebalance will take effect after the market close on Friday, June 25.

This report from Goldman Sachs' David Kostin incorporates the official preliminary list of constituent changes, which remains subject to possible further revisions by the index sponsor during the next few weeks.

FTSE Russell’s preliminary changes to the Russell 3000 include 255 additions and 295 deletions. We incorporated these changes to update our list of potential additions and deletions to the Russell 1000 and Russell 2000 indices.

  • Russell 1000: Our analysis suggests 57 stocks will enter the Russell 1000 large-cap benchmark. These companies include 23 stocks new to the index as a result of IPOs, de-SPACs, or change in eligibility status, and 34 stocks currently in the Russell 2000 index that have appreciated in market cap enough to exceed the threshold for the large-cap benchmark (~$5 billion this year).

  • Russell 2000: We estimate that 279 stocks will enter the Russell 2000 index consisting of 232 constituents new to the index and 47 stocks demoted from the Russell 1000 to the smaller-cap benchmark.

In general, stocks that have an equity market capitalization greater than the 1000th ranked company ($5.2 billion) are included in the Russell 1000 and stocks that rank below the 1000th stock are included in the Russell 2000.

However, existing constituents of the Russell 1000 and Russell 2000 indices are subject to a percentile banding rule and will remain in their current index if they fall within a cumulative +/-2.5% percentile band around the Russell 1000 market cap breakpoint. Therefore, a company currently in the Russell 2000 may fail to be promoted to the Russell 1000 even if it has an equity cap greater than the 1000th stock. Similarly, a current member of the Russell 1000 may not be demoted to the small-cap benchmark if it falls below the breakpoint threshold but is inside the band.

Exhibit 1 illustrates the banding rule...

...and Exhibit 2 summarizes the estimated constituent changes...

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Potential Additions to the Russell 1000 Index

Potential Additions to the Russell 2000 Index

Investors can use the results of our analysis to anticipate potential price moves and buying/selling pressure for stocks being added to and deleted from the widely-followed large-cap and small-cap benchmark indices.