Catherine Yoshimoto
In this paper we analyze FTSE Russell’s decision to transition the frequency of reconstitution of the Russell US Indexes from annual to semi-annual from 2026 onwards.
We focus on two core objectives: maintaining accurate market representation and ensuring indexes remain practical performance benchmarks.
The Russell US Indexes are designed to represent the US equity market objectively, based on constituents’ market capitalization and style. Currently, the Russell US Indexes, including the Russell 1000®, Russell 2000®, and Russell 3000® indexes, reflecting the largest 1000, next 2000, and combined 3000 companies, have been reconstituted annually in June since 1989 when Russell US Indexes moved the annual reconstitution frequency.
While annual reconstitution ensures accurate representation at a single point in time, market conditions and valuations change continuously. This leads to an inevitable drift over time in the characteristics of individual stocks and of the market as a whole. Where to strike the balance between the Russell US Indexes’ joint objectives of maintaining representation and constraining internal index turnover may therefore also need to change.
Recent periods of increased market volatility and dispersion in US equities, coupled with a strong expansion of the volume of assets benchmarked to Russell US Indexes, have highlighted the need for a more regular and responsive approach to index reconstitution.
This document provides:
- Background on current reconstitution methodology: An explanation of the existing annual reconstitution process, its principles and the rationale behind maintaining accurate market representation.
- Market participant overview: An assessment of the key stakeholders who use, support, and track the Russell Index family, including their operational needs. This includes feedback collected during a market consultation conducted on the reconstitution frequency.
- Market depth analysis: An examination of market liquidity to assess the feasibility of implementing a second reconstitution, including the capacity to absorb additional trading activity.
- Turnover and cost analysis: A detailed evaluation of potential turnover impacts and transaction cost analysis under a semi-annual reconstitution scenario.
- Operational changes and implementation: Recommendations for the operational adjustments required for semi-annual reconstitution, including process changes, risk management and resilience testing to ensure successful execution.
- Conclusion and recommendation: The document concludes with confirmation that the Russell US Indexes will move to a semi-annual reconstitution frequency, starting in December 2026, and includes a preliminary reconstitution schedule that will be finalized and published on FTSE Russell’s website in January 2026.
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