Catherine Yoshimoto
A “naïve” construction approach still requires design choices
The Russell US Indexes, launched in 1984, follow a “naïve” construction methodology. This means that the indexes should yield the return and risk an investor could obtain from exposure to the broad US equity market, without any extraordinary knowledge of the opportunity set.
By taking this naïve approach, the Russell US Indexes differ from some competitors. There is no committee deciding which stocks should make it in and when. There is also no requirement for companies to be profitable before joining.
As long as a stock is US-listed and meets the other eligibility criteria, it can join the Russell. The index rules are written to be objective, transparent and straightforward to understand.
This doesn’t mean the index runs itself. The manager of the index still faces important choices. For example, should newly listed companies join on the day of the IPO, a few days later, next month, quarter or next year?
Other index design questions—for example, on nationality, exchange of listing, company structure, permissible share type, minimum free float and minimum voting rights—don’t have right or wrong answers either.
In setting out these design decisions, the index manager has to balance the potentially competing requirements of different client categories, while staying true to the objective of the benchmark.
How the Russell US Indexes have added IPOs in the past
When the Russell US Indexes were launched, they added newly listed companies in alignment with the overall index reconstitution schedule. This meant quarterly from 1984-1987, semi-annually until 1989, then annually from 1989 until 2004.
Since 2004, we have added IPOs to the Russell US Indexes quarterly, making the addition of new entrants more frequent than reconstitution.
What has this meant in practice? IPO additions to the small-cap Russell 2000 index since 2010 have averaged 21 per quarter, whereas IPO additions to the large-cap Russell 1000 have averaged just three per quarter. However, the IPO market is highly cyclical and for the Russell 2000, where IPOs are more common, additions have varied from low single figures per quarter to over 60 (in the third quarter of 2021).
Russell US Indexes Quarterly IPO additions
Source: FTSE Russell, data from Q1 2010-Q2 2026. Q2 2026 data effective as of June 29 2026 US equity market open. Past performance is not a guide to future returns.
Projected mega-cap listings led us to consult index users
2026 has posed a new challenge. The projected listing of several potential “mega-cap” IPOs (including SpaceX, OpenAI and Anthropic) on US exchanges led FTSE Russell to ask stakeholders in February whether we should bring large new companies into the Russell US Indexes more quickly.
Given the likelihood that, at the outset, some of these mega-caps may list only a small percentage of their shares, we also asked stakeholders whether we should relax the 5% minimum free float and 5% minimum voting rights rules.
The main argument for bringing in large, newly listed stocks to the Russell US Indexes more quickly is that the indexes would then be more closely representative of the US equity market as a whole at any point in time.
Fast-entry index inclusion would also enable index-tracking funds to participate in large IPOs closer to the day of listing (rather than waiting for the next quarterly index rebalancing), while minimising potential tracking error against the index.
A fast-entry rule would also bring the Russell US Indexes in line with other well-known FTSE Russell equity benchmarks. The FTSE 100 index, launched in 1984, has had a fast entry rule for potential large new index constituents since the year of its creation. The FTSE Global Equity Index Series (FTSE GEIS), which includes the FTSE All-World index, also allows fast entry for larger companies.
It’s worth stressing that, by comparison with competing US equity benchmarks, the Russell US Indexes have always had a policy of including newly listed companies early. This has helped the Russell 2000 and Russell 1000 indexes include some notable future market winners over a decade before those competitors.
Timely past IPO inclusion in the Russell US Indexes
Source: FTSE Russell. Data as of April 30, 2026. Russell 3000 additions are assigned to the Russell 1000 unless otherwise noted for the Russell 2000. The inception date of the Russell 3000 Index is January 1, 1984. All performance shown prior to the index inception date reflects back‑tested results. Past performance is no guarantee of future returns. Please see the end of this document for important disclosures. *The S&P 1500 Index inception date is January 31, 1995; index performance is not available prior to this date. If the S&P 500 has not yet added the stock, performance is shown as of April 30, 2026.
New Russell US Indexes rule—fast entry on day five for large IPOs
FTSE Russell confirmed on 26 May 2026 that, following the feedback we had received from clients, we would implement a new fast entry rule for the Russell US Indexes with immediate effect. However, we made no changes to the existing minimum free float or minimum voting rights rules.
The new fast entry rule will allow companies that would make it into the Russell Top 500 index (i.e., the largest 500 companies from the Russell 3000) to be added to the index after the close of trading on the fifth day following the initial listing.
There are restrictions concerning the lock-down periods that precede each semi-annual Russell index reconstitution and regarding the type of IPO. For full details, consult our technical notice.
Index effect of fast-entry IPOs
Given the potential size of some of the projected 2026 IPOs, there has been a lot of press commentary on the potential impact of newly listed companies on the broader US equity market.
Just as a small number of mega-cap tech firms have recently had an outsize influence on the behaviour of US stock benchmarks, including the Russell 1000, 2000 and 3000, any potential new equity market giants could also play a significant role.
However, the inclusion of new entrants after the end of the fifth day of trading, rather than immediately on listing, should help address any immediate post-IPO share price volatility.
And it’s important to remember that any IPOs eligible for fast entry to the Russell US Indexes will only be included at their free float market capitalization. In other words, if a company lists its shares with a 5% free float, only 5% of its total market capitalization will be used in the index calculation.
This policy—adjusting share counts to reflect only those shares that are freely available to investors—was one of the original design steps taken by the managers of the Russell US Indexes. It’s still in force over four decades later.
Not all US equity indexes follow the same practices on free float, so it’s worth checking this important component of the index methodology.
Methodological enhancements and changes in a changing securities market are inevitable. But the goal of the Russell US Indexes hasn’t changed—to reflect the US equity market as it is.
Disclaimer
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