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CNBC ON DIGG

Upcoming Rebalancing of the Russell Indices

Published: Tuesday, 16 Jun 2009 | 8:55 AM ET

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By: Robert Hum
Markets Producer

The annual rebalancing of the market cap-weighted Russell indices will occur after the close on the last Friday of this month. At that time, some components will be replaced with new ones, while the remaining members will be re-weighted.

While the specific changes will only be finalized on June 26, here’s a summary of the preliminary number of forthcoming changes:

                    Additions           Deletions
Russell 1000          2                    1
Russell 2000        274                 149

Note that the components in the Russell 1000 [RUI Loading... () ] and Russell 2000 [RUT Loading... () ] indices make up the broad-based Russell 3000 index [RUA Loading... () ], which represents 98% of U.S. equity markets.

Keep in mind, unlike the S&P indices, which are rebalanced quarterly, the Russell indices are reconstituted only once each year. With $4.4 trillion in assets benchmarked to the Russell indices, the lengthy time span between reconstitutions makes this year’s Russell rebalancing quite significant due to the heavy market sell-off over the past year.

One telling change reflecting the "sign of the times" is the indices’ minimum market cap requirements. This year, the minimum cut-off for the larger cap Russell 1000 index is expected to be $1.2 billion. That’s significantly down from the $2.0 billion requirement last year. Similarly, stocks in the small cap Russell 2000 will likely have a minimum market cap of $76 million, down from the $167 million threshold last year.

Over the past year, the Russell 1000 has dropped 33%, while the Russell 2000 has fallen 31%.

The Russell rebalancing will also have some effect on the indices’ sector weightings. In the Russell 1000, the financial and healthcare sectors will see the biggest gains in weighting, while the tech and industrial sectors will see their influence fall the most. Separately, in the Russell 2000, industrials and financials will experience significant gains in their weightings, while the healthcare and consumer staples sectors will see their impact on the index drop.

Change in Weightings Upon Russell Rebalancing:

S&P Sector                        Russell 1000                Russell 2000
Consumer Disc.                unchanged                    -0.04%
Consumer Staples               -0.04%                      -0.36%
Energy                             -0.10%                       -0.10%
Financials                           0.37%                        0.56%
Healthcare                          0.11%                      -0.39%
Industrials                         -0.23%                        0.64%
Technology                        -0.22%                       0.19%
Materials                             0.03%                      -0.09%
Telecom                          unchanged                     0.01%
Utilities                               0.08%                      -0.41%

Source: Investment Technology Group

The large caps of the Russell 1000 include the well known companies like Exxon Mobil [XOM Loading... () ], Microsoft [MSFT Loading... () ] and Wal-Mart [WMT Loading... () ]. Some of the biggest companies (by market cap) on the Russell 2000 include: