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Record setting year for the Russell Shuffle

By Ron Bundy - managing director, FTSE Russell

The end of June is a very exciting time, but not because the schools are closed and the beaches are open. Around here, it’s time for the Russell Shuffle—as some pundits call it—which means rebalancing Russell US Indexes’ entire platform. This year’s narrative was clearly about breaking records. Indexes representing more than $30 trillion in US market capitalization and tracked by more than $9 trillion were rebalanced on Friday, June 22, making it the largest Russell Reconstitution in our more than 30-year history. In addition, 1.2 billion shares changed hands in less than a single second via the Nasdaq closing cross on Friday, which was also a record, and we hit some other milestones, as well.

The annual Russell Reconstitution rebalances our Russell US Indexes, including the widely followed US large cap Russell 1000® Index and US small cap Russell 2000® Index, as well as the Russell Growth and Value Indexes. This event and related adjustments essentially redefines, refreshes and recasts the entire Russell US family of indexes for the next 12 months and helps our clients re-evaluate the equity landscape with a fresh perspective. Such a complex undertaking by our index team requires our full commitment to operational excellence.

This year’s Russell Reconstitution marked the 15th consecutive Nasdaq Closing Cross and saw a record $39.26 billion traded representing 1.18 billion shares across some 2,591 Nasdaq listed stocks (primarily small caps) in the last 0.935 seconds of the US trading day.

Needless to say, as the values and volumes reach new highs, the stakes climb with them. But for over 30 years, we’ve developed and refined our methodology and execution to ensure that Russell Recon has the least impact on investors and markets. Each year brings a new wrinkle, though we’re proud that Reconstitution has performed seamlessly no matter what global or local events take place. In 2016, our team woke to the news of Brexit. In 2017, we performed a market consultation on voting rights and ultimately decided not to include SNAP in our Russell US Index Reconstitution.

This year the story has been small caps, as the Russell 2000 Index has hit numerous highs YTD including a new record high on June 20, 2018[1], just two days before reconstitution. As our own Alec Young, managing director, global markets research, explains, “With many of 2018’s equity headwinds being international in nature, the Russell 2000 Index has outperformed the large cap Russell 1000 Index, in large part due to small caps’ lower international sales exposure,” he says. “Being more domestic has insulated small caps from trade tensions, geopolitical worries and the earnings drag stemming from a stronger dollar. Being less global also gives small caps more exposure to several US market positives including tax reform, increasing deregulation and faster US economic growth relative to weaker recoveries in Europe and Japan. All these tailwinds are helping drive faster profit growth for small caps relative to their blue chip counterparts, helping fuel YTD leadership.”

On another interesting note, small caps have turned the table on large caps. The Russell 2000 has risen 10.38% relative to 4.28%[2] for Russell 1000 YTD as of June 22, driven mainly by the Health Care, Consumer Discretionary and Technology sectors. And, interestingly, this strong performance has occurred amidst record low levels of volatility for small caps relative to large.

Each year, Russell Reconstitution goes out with a bang, or more correctly a clang, of the closing bell. This year, I was honored to join many of our clients and colleagues to ring the bell at NASDAQ. And I was especially delighted to congratulate our hard-working recon team for their hard work and dedication that ensures the process is executed flawlessly for our clients and the market.

To learn more about our methodology and read the latest research, visit the Russell Reconstitution page.

 

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[1] Marketwatch, 6/20/18

[2] Source: FTSE Russell. Data as of June 22, 2018. Past performance is no guarantee of future results. See the disclaimers for important legal disclosures.

 

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