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Reconstitution frequently asked questions
Q: Why does Russell fully reconstitute its entire family of indexes?
A: Russell believes indexes should represent the investable opportunity set. Because markets continually change, there needs to be a procedure in place that periodically captures the opportunity set and strives to bring it back to full representation. Our process of including quarterly addition of IPOs and daily and monthly adjustments reinforces this balance.
Q: Why don't you reconstitute the indexes more often than once a year?
A: Maintaining representative indexes must be weighed against the costs associated with making frequent changes to index constituents (namely, buying and selling stocks). The Russell Indexes are annually reconstituted because our research has shown that this strikes a reasonable balance between accuracy and cost. We originally reconstituted our indexes quarterly, then semi-annually, but found these options to be suboptimal. Our extensive research demonstrates that annual reconstitution accurately represents the capitalization segments and minimizes the turnover required to reflect the segments as they change.
Q: When is reconstitution this year?
A: The 2008 reconstitution of the Russell Indexes will occur June 27. Both our U.S. and Global index families will go through reconstitution simultaneously. Provisional indexes will be published beginning on June 13 to allow investors to begin to track the new indexes prior to reconstitution and legacy indexes will be published beginning on June 27 to allow investors to continue to track the old indexes. We provide these indexes before and after the official reconstitution date to allow investors to choose their own timing on when they want to execute their index trades.
Q: What's the basic process?
A: On the last trading day in May (this year May 30), all eligible securities globally are ranked by their total market capitalization. Companies whose stocks are listed on eligible stock exchanges in eligible countries and who pass minimum liquidity and other investability rules are considered for inclusion in the indexes. Beginning on June 13, preliminary lists for the additions and deletions to the indexes are communicated to the marketplace. These changes go into effect after the close on Friday June 27. All Russell indexes are subindexes of the Global Index.
Q: Can I get more info on the methodology?
A: Russell's transparent construction and methodology rules are posted on www.russell.com. Russell Indexes—the leading institutional benchmarks—are objective, comprehensive, and built according to transparent rules. Member stocks are not selected by a committee. We allow the market to decide which stocks are included, based on capitalization, so our indexes remain relevant no matter how market activity changes. And we are committed to staying that way.
Q: What stocks are eligible for the global index?
A: The Russell Global Index measures the performance of the global equity market based on all investable equity securities. The index encompasses 98% of the investable global market. All securities in the Russell Global Index are classified according to size, region, country, and sector; as a result, the Index can be segmented into more than 300 subindexes.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, representative of the U.S. small capitalization securities market Indexes used in this article are unmanaged and provided for general comparison purposes only; they cannot be invested in directly.
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Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.
Indexes are unmanaged and cannot by invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
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