By: Wesley Wynn, director of global and US benchmark products
This is the time of year when the Russell US Indexes are rebalanced to ensure accurate representation of the market and its size and style segments. The process of rebalancing often reveals a larger picture of the trends occurring in the market and serves as a reminder as to why this process is so important, and this year it appears that the technology sector is fortifying its position among the top constituents in the Russell US Indexes in terms of size based on market cap.
As we can see in the illustration below, the overall size of the market as represented by the Russell 3000 Index grew by nearly 13% since the 2016 reconstitution. In line with this growth, we see that the breakpoint between large cap—those stocks included in the Russell 1000 Index—and small cap stocks—as represented by the Russell 2000 Index—increased by 17%. Of the top 10 largest companies in the Russell 3000, only ExxonMobil decreased in market cap size. And for the first time ever, four of the largest five companies are from the technology sector.
Market cap ranges and breakpoints between US large and small cap, with and without banding
Source: FTSE Russell. * Reflects banding. Data as of May 12, 2017 and May 27, 2016 respectively.
As of rank day, which occurred on May 12, 2017, the top four technology companies now account for 84% of the total market cap of the largest five companies in the Russell 3000 Index. I wanted to examine the evolution of this development in the technology sector, so I took a look back at the top 10 largest companies in the Russell 3000 Index as of reconstitution over the last ten years. As we can see below, technology stocks have been steadily increasing as a percentage of the total market value of the top ten largest companies in the index. Ultimately crossing over to the majority after the 2017 reconstitution, technology companies now represent 53.1% of the total market value of the top ten companies in the Russell 3000.
Percentage of largest 10 companies in the Russell US Indexes by market value represented by technology companies
Source: FTSE Russell. Data as of June 23, 2017.
We can only speculate as to what this trend can tell us about where the market is headed. However, there is no doubt that the technology sector has become a major player in the makeup of the Russell US Indexes. Annual reconstitution allows us to identify these underlying market trends as they emerge. Most importantly, however, the annual rebalancing process ensures that the Russell US Indexes continue to accurately reflect the market.
For more detail on this year's rebalancing, please visit the 2017 Russell Reconstitution Recap on our website.
© 2017 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.