The annual changes to stock indexes maintained by Russell Investments make June a busy month for index mutual fund managers, and new criteria are expected to make this year's shift the most labor-intensive since 2007.
Russell, based in Tacoma, Wash., estimates that $3.9 trillion is benchmarked to its U.S. stock market gauges, which include the Russell 1000 index of large companies and the Russell 2000 index of smaller companies. Less widely publicized than the 30-stock Dow Jones industrial average and the Standard & Poor's 500 index, the Russell indexes are broader in scope.
Changes to the indexes unleash a torrent of trading that can make rebalancing day among the busiest of the year. Last year, 12.8 billion shares changed hands on U.S. exchanges on June 26, the 16th highest total in 2009, according to Bloomberg data. In the previous four years, volume on rebalancing day was in the top 10. Direct Edge Holdings Inc., which is converting its two U.S. stock trading venues into exchanges, postponed the shift so it wouldn't coincide with the index changes.
Berkshire Hathaway Inc., the investment company run by billionaire Warren Buffett, may be added to the Russell 1000 after a 50-for-1 stock split on Jan. 21 made the company's B shares more affordable. The S&P 500 added Berkshire Hathaway on Feb. 12, and Russell probably will follow suit, according to BlackRock and index analysts at Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bank of America Corp.
Like S&P, Russell also altered its criteria for companies domiciled outside the U.S. for tax benefits. Companies such as Covidien PLC, a maker of medical devices, and Tyco International Ltd., the world's largest maker of security systems, were removed from the Russell 1000 after moving their incorporation from the U.S.
After a similar rule change by S&P, Russell decided to take into account the location of a company's assets and the primary listing place for its shares, making it possible those companies, as well as Thomson Reuters Corp., Ace Ltd. and Ingersoll-Rand PLC, will be reinstated, according to Investment Technology Group Inc., the owner of the oldest U.S. block-trading system. Russell was scheduled to release a preliminary list of changes after the market closed on June 11. The rebalancing takes effect after the close of U.S. markets on June 25.