The Conversation (0)
Investors often look to various indexes in order to track market trends and decide which companies are worth investing in. While some are very well known, such as the Dow Jones Industrial Average and the S&P/TSX Composite, others, like Russell Investments Group indexes, aren’t on everyone’s radar.
Like most indexes, the Russell indexes are divided into different groups. The global sectors used for all of them are: financial services, consumer discretionary, consumer staples, energy, technology, healthcare, producer durables, material and processing and utilities.
The Russell indexes are all reconstituted annually to ensure that they reflect the ever-changing market. During that time, the constituent companies are re-ranked according to their market cap for the year. At the same time, additions and deletions are made for a variety of reasons; for example, a company might go private, go bankrupt or be acquired by another company.
To be included on the Russell US equity indexes, companies must meet certain requirements, including being listed on one the NYSE, NYSE MKT, NASDAQ or ARCA. Companies must also have a close price at or above US$1 on their primary exchange and a market cap of US$30 million or higher; furthermore, more than 5 percent of their shares must be available in the marketplace. Criteria for inclusion on the Russell global indexes are more elaborate.
Currently, assets worth $5.2 trillion are benchmarked to the Russell indexes, and “more institutional funds track [the indexes] than all other US equity indexes combined.” Here’s a breakdown of Russell Investments Group’s popular indexes and how investors can benefit from using them.
What is the Russell 3000® Index?
The Russell 3000® Index (INDEXRUSSELL:RUA) looks at the performance of the 4,000 largest US-traded companies, and represents 98 percent of the investible US equity market. Both the Russell 1000® and Russell 2000® indexes come from this larger group of companies.
What is the Russell 2000® Index?
The Russell 2000® Index (INDEXRUSSELL:RUT) measures the performance of about 2,000 companies on the Russell 3000® Index, serving as a benchmark for small-cap stocks in the US. The index is designed to “provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.”
What is the Russell 1000® Index?
The Russell 1000® Index (INDEXRUSSELL:RUI) looks at the performance of large-cap US equities and, as mentioned, is a sub-index of the Russell 3000® Index. It takes into account approximately 1,000 of the largest securities, representing about 92 percent of the US market. The index is tracked by several exchange-traded funds, including the iShares Russell 1000® Index (NYSEARCA:IWB) and the Vanguard Russell 1000® Index (MUTF:VRNIX).
What is the Russell Global® Index?
Unlike the indexes mentioned above, the Russell Global® Index looks at the performance of the global equities market, not just US companies. All securities in this index are classified according to size, region, country and sector, meaning that it can be divided into thousands of distinct benchmarks. Naturally a lot goes into calculating the global list, and in order to keep it manageable, there is a minimum market cap of US$1 million.
What is the Russell Fundamental Emerging Markets® Index?
As its name suggests, this Russell index measures the performance of investible securities in emerging countries around the world. Due to its size, the emerging markets index is divided into large, small-cap and mega-cap companies. The fundamental measures for this index are different than the US equity indexes in that the companies are ranked according to company size — adjusted sales, retained operating cash flow and dividends plus buybacks — rather than by market cap.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.