Q: Why does FTSE Russell fully reconstitute its entire series of Russell US Indexes?
A: FTSE Russell believes indexes are designed to represent the entire investable opportunity set. Because markets continually change, there must be a systematic procedure in place to keep the indexes’ representation of the markets or market segments reflective of new market information. Fully reconstituting the indexes annually, adding eligible IPOs (initial public offerings) and making share adjustments quarterly, and applying corporate actions daily maintains the representative nature of the Russell US Indexes while avoiding the unnecessary turnover a more frequent full reconstitution could cause.
Q: Why don't you reconstitute the indexes more often than once a year?
A: Maintaining representative indexes must be weighed against the cons associated with making frequent changes to index constituents. In other words, an index must balance the precision of representation with practical and acceptable levels of turnover.
Russell research and Russell client sentiment has supported the annual rebalance schedule, as it strikes a reasonable balance between accurate representation and cost. We originally reconstituted the indexes quarterly, then semi-annually. Our extensive research demonstrated that annual reconstitution of the Russell US Indexes accurately represents the broad market and the market capitalization segments while minimizing the turnover required to reflect market changes.
*FTSE client sentiment supports the implementation of semi-annual rebalances for the FTSE Global Equity Index Series (FTSE GEIS). FTSE Russell will continue to engage with clients via consultations to determine if changes to either methodology are necessary. There are no current plans to change the current rebalance process for either series.
Q: When is reconstitution this year?
A: The 2019 reconstitution of the Russell US Indexes will occur June 28. Provisional Russell US indexes will be published beginning on June 7 to allow investors to track the new indexes prior to the reconstitution effective date. This allows investors the option to choose the date on which they execute their index trades.
Q: What's the basic process for the Russell US index reconstitution?
A: On rank day in May (this year May 10), all eligible US securities are ranked by their total market capitalization. Companies whose stocks are listed on eligible stock exchanges and who pass investability rules are considered for inclusion in the indexes. Beginning on June 7, preliminary lists of additions and deletions to the indexes are communicated to the marketplace. These changes go into effect after the close on Friday, June 28.
Q: How much trading occurs at the Russell US Indexes annual reconstitution?
A: As of the June 2018 reconstitution, $58.7 billion and $39.0 billion in US stocks traded in the closing moments of Friday trading on the New York Stock Exchange (NYSE) and Nasdaq exchanges, respectively.1
Q: Doesn't the annual Russell US Indexes reconstitution heighten volatility of the US equity markets?
A: June volatility ranks eighth out of the twelve months of the year based on the average daily close price from 2004 through 2016 for the CBOE Russell 2000 Volatility Indexsm (RVXsm), which measures market expectations of near-term volatility as conveyed by Russell 2000 Index options prices.2
Q: Can I get more info on the methodology?
A: View FTSE Russell's complete Russell US Index construction and methodology documents available on ftserussell.com.