Russell US Equity Indexes

In 1984, Frank Russell & Company created the Russell family of stock indexes to measure the performance of active managers. Today several hundred billion dollars are benchmarked to Russell's stock indexes, and some of that money is invested in ETFs. The most popular ETF is the iShare Russell 2000, which follows an index of small cap stocks.

Russell reconstructs its indexes annually, using market values on May 31. The largest 3,000 stocks are selected and ranked strictly by size. The Russell U.S. indexes are market cap weighted and include only common stocks domiciled in the United States and its territories. The indexes represent the free-float value of U.S. stocks rather than all shares outstanding.

The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98 percent of the investable U.S. equity market. There are several tiers of Russell indexes, and all are subsets of the Russell 3000 Index with the exception of the Russell Micro Cap index, which extends from stock number 2,001 down to stock number 4,000. See Chapter 8 for a detailed explanation and illustration of the Russell U.S. equity index family hierarchy.

Russell style indexes are divided into growth value categories by ranking stocks according to their price-to-book ratio and forecast earnings growth rate. Each stock is given a score and allocated to the growth or value index accordingly. Russell splits the market capitalization of many stocks that have both growth and value characteristics. Each index represents 50 percent of the total market value of its respective Russell size index. Of the stocks in a Russell index, about 30 percent have a percentage weighting allocated to both the value index and the growth index depending on the style score. These allocations do not overlap and there is no double counting.

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