By Catherine Yoshimoto, director, product management
The 1980s were a turbulent decade, best known for advancements in technology, music, and finance—the impact of which we’re still feeling 40 years later. The decade featured the launch of the first reusable space shuttle, the dawn of cable television, and the emergence of video cassette recorders (VCRs) as household staples. And in 1984, Apple Computer introduced its first Macintosh personal computer, marking the beginning of a decades-long revolution in how we interact with computers and cell phones.
The 80s were also a time of dynamism for US equity markets. After a period of stagnation, interest rates and inflation fell, and economic growth rates accelerated. And as equity markets around the world rose on a wave of optimism, Russell Investments launched the first Russell Indexes in 1984—setting a new standard for the way these growing markets were represented, segmented, and measured.
Despite having weathered several downturns since the 80s, on the whole US equity markets have since continued to grow. Recognizing that markets are constantly shifting, we conduct an annual Reconstitution—a complete rebuilding of our Russell indexes—each June. This ensures they accurately reflect their intended market segments—and don’t get stuck in the 80s.
From VCRs to streaming video: changing markets and shifting breakpoints
A lot has changed since the 1980s—both with respect to technology and US equity markets. And we’ve learned the only way an index can continue to accurately reflect an ever-changing equity market segment is to change in lockstep. This requires reevaluating and reconstructing our Russell Indexes on a regularly scheduled basis.
Our annual Russell Recon addresses this need. Each June, our process re-ranks and evaluates all index constituents for inclusion in the index. The result is an unbiased approach to capturing the US equity market, which defines the breaks between large, mid, and small cap and determines where companies fall along the growth/value and defensive/dynamic dimensions.
As shown, since the Russell Indexes’ creation in 1984, the breakpoint between large and small cap—as represented by the Russell 1000 and Russell 2000—has varied dynamically to reflect the shifting valuations of US stocks. At $4.6 billion, the 2022 breakpoint was almost four times higher than in June 2009, in the immediate aftermath of the global financial crisis, and 18 times higher than in June 1984, when the Russell Indexes were launched.
A growing Apple and mushrooming markets
Apple Computer’s history as a constituent in our Russell Indexes is an apt illustration of how far the technology giant has come since the 80s. As one of the original Russell 3000 constituents at index launch (included in the backtested index history from 1981), Apple had a float-adjusted market capitalization in the newly developed index series of $1.5 billion as of June 1984. As of May 2022, Apple's float-adjusted market cap was an incredible 1,697 times that amount ($2545.6 billion).
Apple’s rise is a testament to the growth that the indexes—and the US equity markets they represent—have experienced over the last four decades. Despite weathering the dot-com crash, the global financial crisis, and most recently the global pandemic, the Russell 3000 has returned an annualized 11.91% since its 1984 launch.
As markets have mushroomed since the inaugural Russell Reconstitution in 1984, we’ve held onto the belief that our work to build and maintain the most accurate, comprehensive US equity indexes is never finished. We’ve made several methodological enhancements to improve the process, many of which were inspired by the growing US equity markets and evolving use of our Russell Indexes, as the timeline below sets out.
A rigorous process to ensure our indexes aren’t stuck in the 80s
Annual Reconstitution is critical to an index’s accurate representation of the market segment it’s intended to capture. Think back to our example of Apple and the incredible increase in market cap the company has recorded since 1984. Its achievement has been mirrored by the broader US stock market, which has also experienced tremendous growth over the last four decades.
Without a system in place to regularly account for and adapt to this kind of growth, the Russell Indexes would be stuck in the 1980s. And as exciting and revolutionary as that decade was, most of us would prefer the modern world of mobile, streaming video on demand to that old, clunky VCR.
Read our paper: four decades of Russell Recon.
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