Russell Indices Family Eye Annual Rebalancing on June, 27: Lessons and Aspirations

On June 27, the popular Russell indexes will be reviewed and possibly get their annual component adjustments. FTSE Russell manages a range of U.S. stock market indexes that are among the most popular benchmarks for institutional and retail investors. This will be an event that has historically triggered major market volatility in dozens of impacted stocks. In 2021, Russell reconstitution day was the highest-volume trading day of the entire year.

Every year on the fourth Friday of June, the Russell 1000, Russell 2000, Russell 3000 and other Russell indexes are reconstituted. (FTSE Russell gives investors clues about what moves they should expect.) It reevaluates companies based on investment criteria to determine eligibility for indexes based on growth and value.

Based on FTSE Russell’s preliminary reconstitution projections, nearly 300 stocks will join the Russell 3000 index. The list of names moving into the Russell 3000 include Airbnb (ABNB), Bumble (BMBL), Coinbase Global (COIN), Gulfport Energy (GPOR), Hertz Global (HTZ), and Lucid Group (LCID).

Roughly 300 stocks are also getting booted from the Russell 3000, including Citizens (CIA), Clovis Oncology (CLVS), Genius Brands International (GNUS), Ideanomics (IDEX), Kirkland’s (KIRK) and Red Robin Gourmet Burger (RRGB).

What lessons should Russell’s managers learn from the past rebalancing efforts and, particularly, from the recent rebalancing of its older brother, Dow Jones Industrial Average?

On August 31, 2020, Exxon was removed from Dow Index and replaced by Salesforce. From the rebalance date to June 10, 2022, the stock of Exxon is up 174%, while the stock of Salesforce is down 34%. This represents a stellar example of futility of pursuing the opportunistic market trends and adherence to any artificial numeric criteria in the era of elevated volatility.

To date, the best introductions to the Dow Jones index have been: UnitedHealth Group (UNH) +900.2%, Apple (AAPL) + 371%, The Travelers (TRV) + 435.2%, and Visa (V) +326.2%.