Russell Indexes: Tracking Investment Manager Performance

Launched in 1984 by Russell Investments as a tool to measure distinct market sectors and track the performance of US investment managers, the Russell Indexes are widely respected in investment circles. This is evidenced by the fact that in November 2009 a total of $4.3 trillion in investment assets were benchmarked to Russell Indexes, accounting for 63.3 percent of all assets benchmarked by institutional investors. Russell Indexes consist of the broad-market based Russell 3000 Index, along with a number of sub-components such as the Russell 2500 Index, Russell 2000 Index and Russell 1000 Index.

As the name suggests, the large-cap Russell 3000 Index measures the performance of 3,000 stock market listed US companies based on their total market capitalization. This index represents around 98 percent of US publicly held companies. The Russell 2500 Index measures the performance of the 2,500 smallest companies that appear in the Russell 3000 Index, while the Russell 2000 Index is a small-cap index incorporating the bottom 2,000 stocks listed in the Russell 3000 Index. The Russell 2000 is the most widely utilized investment tool for measuring small-cap to mid-cap company shares performance. On the other end of the scale, the Russell 1000 Index represents the 1,000 highest-ranking stocks in the Russell 3000 Index, and represents around 90 percent of the index’s total market capitalization.

Other Russell Indexes include the mega-cap Russell Top 200 Index, measuring the performance of the 200 largest stocks in the Russell 3000 Index; the Russell Top 50 Index measuring the top 50 companies in the Russell 3000 Index; the Russell Midcap Index; the Russell Microcap Index; and the Russell Small Cap Completeness Index which includes stocks that appear on the Russell 3000 Index, but are absent from the S&P 500. The top ten holdings in the Russell Top 50 are: ExxonMobil, Microsoft, Johnson & Johnson, Procter & Gamble, AT&T, IBM, Chevron, JP Morgan Chase, Apple and General Electric. The top sectors by weight are: technology, health care, energy, consumer staples and financial services.

Using a process referred to as “reconstitution”, each year in June, the Russell Indexes are rebalanced by updating the global list of stocks and reassigning them to the most appropriate index at that time. With this process only taking place once a year, if a company listed on a Russell Index either merges with another firm or has its stock delisted, it is not removed immediately. However it should be noted that Initial Public Offerings (IPOs) are added on a quarterly basis.