Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Online
June 05, 2009 01:00 AM

Russell indexes to get a face-lift this month

Many financials are expected to move to growth from value

David Hoffman
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Thanks to unprecedented market volatility, widely followed style indexes published by Russell Investments are expected to look substantially different at the end of the month when the firm’s stock indexes are rebalanced.

    For example, many financial stocks likely will shift to Russell growth indexes from Russell value indexes when the Tacoma, Wash.-based index publisher comes out with the final reconstruction of its indexes after the close of U.S. markets June 26, said Ronald J. Surz, president of San Clemente, Calif., consulting firm PPCA Inc., who created his own set of style indexes in the mid-1980s.

    The earnings of many financial companies have fallen faster than their stock prices, making the stocks appear expensive on a relative basis, he said.

    Smile for the camera

    The annual reconstruction of Russell’s indexes started last May 29 when Russell took a “market snapshot” for stock price and share data at the market’s close.

    A preliminary list of the additions and deletions to Russell indexes will be published after the market close June 12, and updates to the list will be made June 19 and 26.

    Unprecedented market volatility will probably result in significant movement of financial stocks between style indexes, said Stephen Wood, a senior portfolio analyst with Russell.

    Because Russell had yet to take its market snapshot, however, he was leery of talking about specifics.

    Russell allocates stocks that have both value and growth characteristics to its indexes on a percentage basis, depending on how strong those characteristics are. As a result, some stocks can appear in both value and growth indexes — an approach that differs from that of Standard & Poor’s of New York.

    When putting together its style indexes, S&P draws a much harder line that divides stocks into value and growth.

    Also, S&P re-balances its domestic style indexes at the end of December and its global indexes at the end of September.

    It is partly because of when S&P re-balances its style indexes that its financial stocks didn’t move from value to growth. Because of when Russell re-balances its indexes, it will capture this year’s rally in financials.

    The most dramatic changes to Russell’s style indexes are expected to center on financials, but other sectors are also expected to witness significant change.

    Energy and health care are set to “slim down” in the small-cap Russell 2000 Growth Index, while consumer staples, financials and information technology should “bulk up,” according to a report from Merrill Lynch & Co. Inc. of New York at the end of April.

    “In the Russell 2000 Value [Index], we project utilities and consumer staples will see weight declines, versus rises for energy and industrials,” the report said.

    The health care sector should become a larger portion of the large-cap Russell 1000 Growth Index, and industrials are set to shrink, according to the report.

    Front-running risk

    The changes are important to investors because more turnover in the style indexes means potentially more turnover in the mutual funds and exchange traded funds that follow them, said Michael Krause, president of AltaVista Research LLC, a New York-based ETF research firm.

    Turnover isn’t as much of a problem for ETFs, because of their tax-efficient structure, but a mutual fund forced to sell stocks may create an unwanted capital gains distribution, he said.

    Of course, with so many investment losses, capital gains aren’t expected to be much of a concern.

    Increased turnover, however, can still lead to an increase in front-running, in which investors try to snap up stocks that they think will be included in the index.

    “When changes are announced, people rush to buy ahead of the index funds, causing a pop in stocks that are about to switch indexes,” Mr. Krause said.

    That can make it more expensive for a fund to buy the stock.

    Russell, however, addresses front running by telegraphing changes to its indexes well ahead of its final re-balancing, giving institutional investors the chance to spread their trades over time.

    But even if the company didn’t do so, Mr. Krause said, he doesn’t think front running would be a big issue this year.

    There will be some change, but because everything is beaten down, “I don’t know there will be that dramatic of a shift this year,” he said.

    David Hoffman is a reporter at InvestmentNews, a sister publication of Pensions & Investments

    Recommended for You
    Happy Fourth of July greeting
    No P&I Daily for Independence Day holiday
    Juneteenth_1550_i.jpg
    No P&I Daily on Juneteenth
    No P&I Daily on Memorial Day
    No P&I Daily on Memorial Day
    Strong Demand Drivers Underpin Private Credit
    Sponsored Content: Strong Demand Drivers Underpin Private Credit

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    July 4, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit