Last Week’s Russell Inclusion List Will be Tweaked on Friday

This evening (June 10) and next Friday are days the FTSE Russell Index sets aside in their annual Russell 3000 reconstitution to check their
work. On these two Fridays, The Russell posts updates to its equity index reconstitutions that had been announced last Friday. These updates and adjustments to the original lists provided could occur for a number of reasons. The reactions to stock prices impacted could be strong as these announcements (when they occur) are less predictable and not surrounded by hundreds of other companies being added or deleted. The adjustment announcements will be after 6 pm ET on June 10 and June 17. Below are some of the reasons that FTSE Russell may adjust their newly included companies just a week or two after the initial announcement.

Possible Reasons for Adjustments from the FTSE Russell
Equity Index Guidelines:

• If an incorrect Closing Price was used, the index would determine if the index constituent still fits within the index, if not, it would replace the company.

• It is possible for them to have used an incorrect or ineligible company and added it. If discovered, the index would change out the ticker and replace it with the next in line.

• The currency used to evaluate the company’s market cap may have been incorrect. In this case, the error would have either overstated or understated the market cap. It is recalculated and Russell would re-order where the company stands in relationship to others.

• Dividend ex-dates can throw a monkey wrench into calculations if not caught. The additional two Fridays give The FTSE Russell a chance to eye any oversights and adjust the index representation.

• If there is a dividend and the incorrect amount was used to calculate, this would be backed out and recalculated. These would be redone and the company would be slotted accordingly.

• Ticker Symbol Change, Facebook, or now say Meta just had a ticker symbol change to match the name change. While this company was already included in the larger index, the ticker will be changed to reflect the new identifier.

• If there is a change in the company (ie: merged, acquired, large divestiture) prior to the third Friday in June, the combined/divided market-cap(s) will be recalculated and positioning adjusted. If both companies were included, it might make room for the inclusion of one more.

A complete list of the Russell index additions announced on June 3, 2021 with the preliminary add-ins can be found here. Many of the companies have already experienced “out of the ordinary” activity in their shares.

Take Away

The annual reconstitution is a significant driver of dramatic shifts in repositioned company stock prices as index portfolio managers have their required holdings adjusted for them. The initial list from FTSE Russell is largely accurate and has a big impact on stocks. Any revisions from there could provide opportunity.  It’s worth paying attention to.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Russell Reconstitution 2022, What Investors Should Know

About the FTSE Russell Preliminary Index Additions & Deletions Membership Lists

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