The Annual Russell Index Revision and Dates to Watch
The yearly process of recasting the Russell Indexes begins on May 7, 2021, and will be complete by market open on June 26. During the period in between, Russell will rank stocks for additions, for deletions and evaluate the names to make sure they conform overall. The methodology is largely transparent to help smooth the process. Still, Russell index products are used by institutional and retail investors globally, with more than $16 trillion currently benchmarked to them. This includes approximately $9 trillion benchmarked to the Russell US Equity indexes. The trading volume of some companies moving into an index will heighten around the last Friday in June as fund managers seek to maintain level tracking with their index target. For non-passive investor money, determining which stocks may benefit from moving up to a larger cap index, down to a smaller one, or into or out of the measurements is an annual event with volatility around stocks. There is, of course, the potential for very profitable long and short trades.
Active investors should make themselves aware of the forces at play so they may either get out of the way or become involved by taking positions with those being added or those at the end of their reign within one of the Russell measurements.
COVid-19 Dramatic Valuation
Shifts
The reconstitution mid-year 2021 is going to impact a much larger number of companies than most years. As with everything else related to the financial markets, the price swings will likely be more amplified than normal. That is to say, more companies than normal will move in, out or to another index.
The 2021 Russell
US Index Reconstitution Calendar is as Follows:
• Friday, May 7 – “rank day” – Russell US Index membership eligibility for 2021 reconstitution determined from constituent market capitalization at market close.
• June 4 – preliminary US index add & delete lists posted to the FTSE Russell website after 6 PM US eastern time.
• June 11 & 18 – US index add & delete lists (reflecting any updates) posted to the FTSE Russell website after 6 PM US eastern time.
• June 14 – “lockdown” period begins – US index adds & delete lists are considered final • June 25 – Russell Reconstitution is final after the close of the US equity markets.
• June 26 – equity markets open with the newly reconstituted Russell US Indexes.
Take-Away
The annual reconstitution is a significant driver of dramatic shifts in some stock prices as portfolio managers have their needs shifted within a very short period of time. Longer-term demand for certain equities is altered as well. Sizable price movements and volatility are expected, especially around the last week in June. In fact, the opening day of the reconstitution is typically one of the highest trading-volume days of the year in US equity markets.
The market event impacts more than $9 trillion of investor assets benchmarked to or invested in products based on the Russell US Indexes. Portfolio managers that are required to track one of these indexes will work to have minimal portfolio slippage away from their benchmark. The days and weeks from May 7 through the end of June can create opportunities for investors seeking to benefit from price moves, Channelchek will be covering the event as stocks to be added to, or removed from this year’s Russell Reconstitution and other information plays out. Be sure to register to receive Channelchek updates and information.
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