Anyone talking about the American stock market knows the Dow Jones Industrial Average. The index has existed since 1929 and comprises 30 stocks. For a broader view of the stock market, you better use the S&P500 stock market index. A composition of ±500 companies.
Over the years, a number of companies have grown in such a way that the index is increasingly influenced by a limited number of shares. This is the disadvantage of an index based on market capitalisation. If for this reason you are looking for an even broader index, the Russell is a solution.
However, the Russell is also a market capitalisation-weighted index whereby the largest companies again have the most influence on the performance of the index.
The market capitalisation or market capitalisation of a company is calculated by multiplying the number of outstanding shares by its market price.
The redistribution of the Russell index takes place once a year at the end of June.In May, the market capitalisation of all shares is determined and the composition of all indices is adjusted. The ‘new’ index was created at the end of June 2020.
At the end of June, the ‘new’ Russell 1000 consisted of 1004 shares. During the year, there are no more adjustments. No shares are added but shares may disappear due to acquisition or suspension.
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The Russell 1000 is a subdivision of the Russell 3000 index and contains the ±1,000 largest shares based on market capitalisation. We talk about the “large-cap stocks”. This index currently represents 92% of the US equity market value.
The Russell 1000 Index is therefore compiled annually and ensures that new and growing shares are included.
The Russell 2000 is also a subdivision of the Russell 3000 Index. This Index measures the performance of small-cap stocks. It includes the ±2000 smallest securities based on market capitalisation.
The percentage in market capitalisation is currently only 10% of the total market capitalisation of the Russell 3000.
Like the Russell 1000 Index, it is also reconstituted annually to prevent larger stocks from distorting the performance and characteristics of true small-caps.
The Russell 3000 Index measures the performance of the ±3,000 largest US companies and represents 98% of the investable US equity market.
The Russell 3000 thus contains all companies of the Russell 1000 and Russell 2000 together.
The six largest companies have remained unchanged. Microsoft is the largest, followed by Apple, Amazon, Facebook, Alphabet and Berkshire Hathaway. For the first time in history, there are companies with a market capitalisation greater than 1000 billion.
The companies in the Russell 1000 have a market capitalisation of at least 3 billion. The average market capitalisation was 286 billion in May.
The companies of the Russell 2000 have a market capitalisation between 95 million and 3 billion. The average is 1.9 billion.
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Bove is the comparison chart of 3 Russell Indices
As the Russell 2000 only represents 10% of “the capital”, you can see again that a few strong large stocks are giving wings to the Russell 3000 index. The broader market is not doing as well. In February 2020 the Russell 1000 makes a higher top. The Russell 2000 is trading lower than its previous high.
New entrants to a stock market index are regularly purchased by fund managers or for etfollowing, whether or not it is mandatory.
I import the selection ‘Russell3000Add’ via the investment software TransStock. (*) This selection consists of the new shares added in 2020.
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Above the report of this selection with the percentage increase
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The report is sorted by the penultimate column. So since the February top just before the corona. Judge for yourself whether index adjustments can add value to your portfolio…
(*) Right panel TransStock> Favourites > Import button > Select ‘2205 Russell3000Add’ and click Import button.
In TransStock, in the Markets section, you have the composition of the Russell 1000, Russell 2000 and Russell 3000 via “Weighted Indexes”. This way you can quickly find companies based on market value.
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