Russell Texas Equity Index: Adding the geographic dimension

Key takeaways:

• US equities’ capitalisation is approximately 64% of the FTSE Global All Cap Index. As such, US equities cannot be considered a monolithic investment, and important geographic (regional and state) differences may become important to investors once they have access to convenient geographic investment vehicles.
• The Russell approach to providing US equity indices has been to give investors more choice over granular subsets of the very large US equity market. FTSE Russell recently launched a new series of US state indices (based on company headquarters location) adding a geographic dimension, with the Russell Texas Equity Index being the first.
• Texas is a large and growing part of the US economy that seems to have macro tailwinds—a large and growing population, a correspondingly large and growing GDP, and a relatively high GDP per capita. Investment based on the Texas index could help investors focus on participating in its economic growth potential.
• The Texas economy has historically been driven by the energy industry, but more recently it has become a hotbed of technological innovation. This changing economy is reflected in the evolution of the Texas index’s industry composition. This balance between old and new industries could be attractive for some investors, either for strategic long-term allocations, or more tactical allocations if investors have a particular view on the direction of markets.
• A state’s business environment is key when companies are able to move headquarters. Several innovative, fast-growing companies, both in technology and beyond, have moved their locus of operations to Texas in recent years. This reflects advantages the state offers for businesses to thrive in terms of a business-friendly operational environment and the availability of or ability to attract a talented workforce. Capitalising on this trend, the Texas index may present investors with another investment theme to consider.

Points of differentiation:

• This paper helps investors think through a new dimension of US equity market segmentation—the geographic dimension—that they may have not yet considered
• This paper highlights investment opportunities created by companies intentionally moving their headquarters to benefit from advantageous state-specific business environments.

What does our research mean for investors?

This paper allows investors to explore a new way of structuring their US equity allocation along a geographical dimension.