Catherine Yoshimoto
- Health Care industry dominates the graduation of companies from small cap to large cap in the Russell indexes.
- Implementation of a 5% minimum voting rights requirement affects existing index constituents.
- The Russell recon ensures accurate representation of the markets with minimal market impact.
On June 23, the 2023 annual Russell Reconstitution took effect after close of US equity markets. Consistent with previous years, this year’s recon was a big liquidity event with total closing trading volume surging to 4.45 billion shares across the Nasdaq and NYSE. This year also marked some noteworthy anniversaries—it was our 35th annual Russell recon and the 20th year that Nasdaq executed the Closing Cross to complete Russell Recon trading.
With the highly anticipated day behind us, we can now reflect on the biggest takeaways from the 2023 Russell recon:
The new extended calendar was a win
Market participants benefited from the new schedule this year, where rank date was the last business day of April, with preliminary addition and deletion communications starting on May 19. This made for more lead time from preliminary announcements to recon effective day than previous years. The market welcomed the longer window as part of our transparent process that ensures recon day won’t be a directional catalyst for index constituent stock prices.
2023 Reconstitution calendar for Russell US Indexes
| SUNDAY | MONDAY | TUESDAY | WEDNESDAY | THURSDAY | FRIDAY | SATURDAY |
|---|---|---|---|---|---|---|
| 23 | 24 | 25 | 26 | 27 | 28 | 29 |
| 30 | 1 | 2 | 3 | 4 | 5 | 6 |
| 7 | 8 | 9 | 10 | 11 | 12 | 13 |
| 14 | 15 | 16 | 7 | 18 | 19 | 20 |
| 21 | 22 | 23 | 24 | 25 | 26 | 27 |
| 28 | 29 | 30 | 31 | 1 | 2 | 3 |
| 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| 11 | 12 | 13 | 14 | 15 | 16 | 17 |
| 18 | 19 | 20 | 21 | 22 | 23 | 24 |
Source: FTSE Russell. Data as of April 28, 2023. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Banding did its job
In 2007, we implemented banding around the Russell 1000 Index and Russell 2000 Index breakpoints with the objective of reducing turnover. This year’s recon demonstrated the impact of these bands, with 97 existing members of the Russell 2000 Index that had a total market cap above the $4.2 billion breakpoint remaining in the Russell 2000. On the other end of the band, 88 existing members of the Russell 1000 Index that had a total market cap below the breakpoint remained in the Russell 1000.
In essence, 185 constituents that fell within the banding stayed within their respective indexes—thereby reducing recon turnover.
2023 Russell US Indexes market capitalization ranges - Large and small cap with turnover-reducing percentile bands
Source: FTSE Russell. Data as of April 28, 2023. Past performance is no guarantee of future results. Please see the end for important disclosures.
Health Care wore a cap and gown
This year the Health Care industry graduated the highest number of companies from small cap to large cap, representing six of the 22 companies moving up from the Russell 2000 to the Russell 1000. This trend was even more pronounced with smaller companies, with 42% of the almost 200 Russell Microcap companies shifting up into the Russell 2000 allocated to the Health Care industry.
Russell Index 1000
| Source of additions | New to Russell US | From Russell 2000 | Count by Industry |
|---|---|---|---|
| Basic Materials | 1 | 1 | |
| Consumer Discretionary | 1 | 4 | 5 |
| Consumer Staples | 1 | 1 | |
| Energy | 1 | 1 | |
| Financials | 2 | 3 | 5 |
| Health Care | 2 | 6 | 8 |
| Industrials | 3 | 2 | 5 |
| Real Estate | 2 | 2 | |
| Technology | 2 | 2 | |
| Telecommunications | 1 | 1 | |
| Utilities | 2 | 2 | |
| Total | 11 | 22 | 33 |
Source: FTSE Russell. Data as of April 28, 2023. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Russell Index 2000
| Source of additions | New to Russell US | IPOs | Russell Midcap | Russell Microcap | Count by Industry |
|---|---|---|---|---|---|
| Basic Materials | 5 | 2 | 7 | ||
| Consumer Discretionary | 9 | 5 | 19 | 33 | |
| Consumer Staples | 4 | 3 | 7 | ||
| Energy | 5 | 1 | 2 | 8 | 16 |
| Financials | 8 | 4 | 35 | 47 | |
| Health Care | 13 | 3 | 81 | 97 | |
| Industrials | 13 | 2 | 3 | 25 | 43 |
| Real Estate | 1 | 5 | 2 | 8 | |
| Technology | 14 | 3 | 11 | 28 | |
| Telecommunications | 1 | 1 | 4 | 6 | |
| Utilities | 4 | 4 | |||
| Total | 73 | 3 | 26 | 194 | 296 |
Source: FTSE Russell. Data as of April 28, 2023. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
The end of a grace period has an impact
Based on feedback from index users and other stakeholders in 2017, we implemented a 5% minimum voting rights requirement for Russell US Index non-constituents. Existing constituents with a developed market nationality were afforded a five-year period to comply. The grace period expired in September 2022, making this year’s recon the first time it took effect for existing constituents.
As a result, we deleted four Russell 1000 Index constituents and eight Russell 2000 Index constituents that didn’t meet the minimum 5% voting rights threshold.
And that’s a wrap
For the 35th year, the Russell recon ensured our Russell US Indexes accurately reflect the markets they’re designed to represent—and with minimal market impact.
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