Investors replicating the Russell 2000 index could have added 0.6% to their portfolio's performance by altering the portfolio when Russell's proposed changes were announced this year, but before the index was officially rebalanced, research by Investment Technology Group shows.
Every time the index is reformulated, there's a similar opportunity, but this year's potential gain was the biggest in the three years ITG has been analyzing the changes. The proposed changes were made public on May 31, but were not included in the index until June 28.
``In each of the three years we have done our research into this subject, stocks added to the index substantially outperformed those deleted during the rebalancing period,'' said David Cushing, director of research. This year one-third of the entire index - with a total market capitalization of $200 billion - was changed. ITG estimates more than $80 billion is indexed to the various Russell indexes, and many billions more use them as benchmarks. The rebalancing leads to a flurry of trading activity as managers strive to mirror the revised index.