Russell US Indexes

Russell US Indexes are a family of stock market indices designed to measure the performance of different segments of the United States equity market. They are maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG), and use rules-based methodologies based primarily on market capitalization, investability, and other eligibility criteria.

The Russell US Indexes provide benchmarks for large-capitalization, mid-capitalization, small-capitalization, and broader segments of the U.S. equity market.

Russell 3000

The Russell 3000 is the broadest principal index in the Russell US Indexes family. It is designed to represent approximately 98% of the U.S. equity market by market capitalization.

The Russell 3000 is divided into the Russell 1000 and Russell 2000.

A simplified relationship is:

$\text{Russell 3000}=\text{Russell 1000}\cup \text{Russell 2000}$

where the Russell 1000 represents the larger-capitalization segment and the Russell 2000 represents the smaller-capitalization segment.

Russell 1000

The Russell 1000 represents approximately 1,000 of the largest eligible companies in the Russell 3000.

It is commonly used as a benchmark for large-capitalization U.S. equities.

A simplified relationship is:

$\text{Russell 1000}\subset \text{Russell 3000}$

Russell 2000

The Russell 2000 represents approximately 2,000 smaller-capitalization companies within the Russell 3000.

It is widely used as a benchmark for U.S. small-capitalization equities.

Its relationship with the Russell 3000 can be represented as:

$\text{Russell 2000}\subset \text{Russell 3000}$

Russell Top 200

The Russell Top 200 represents the largest companies within the Russell 1000.

It therefore forms a subset of the Russell 1000:

$\text{Russell Top 200}\subset \text{Russell 1000}$

The Russell Top 200 provides a benchmark for the largest segment of U.S. large-capitalization companies.

Russell Midcap

The Russell Midcap represents the mid-capitalization segment of the Russell US Indexes.

It is derived from the Russell 1000 and represents companies below the largest segment of the Russell 1000.

Its relationship with the Russell 1000 can be expressed as:

$\text{Russell Midcap}\subset \text{Russell 1000}$

The precise constituent boundaries are determined by the applicable Russell methodology.

Russell Microcap

The Russell Microcap represents the micro-capitalization segment of the U.S. equity market.

It provides exposure to companies smaller than those generally represented by the Russell 2000 and includes eligible securities according to the applicable Russell methodology.

Russell Growth and Value indexes

FTSE Russell also divides major Russell US indexes into growth and value segments.

Major style indexes include:

• Russell 1000 Growth Index;
• Russell 1000 Value Index;
• Russell 2000 Growth Index;
• Russell 2000 Value Index.

These indexes provide benchmarks for companies exhibiting characteristics associated with growth or value investment styles.

Market capitalization

Market capitalization is generally calculated as:

$\text{Market Capitalization}=\text{Share Price}\times \text{Shares Outstanding}$

Russell index construction uses market capitalization together with additional eligibility and investability requirements.

Companies are ranked within the eligible U.S. equity universe according to their applicable market capitalization.

Index weighting

Russell US Indexes generally use a market-capitalization-weighted methodology based on investable market capitalization.

A simplified constituent-weight calculation is:

${\text{Index Weight}}_i=\frac{{\text{Investable Market Capitalization}}_i}{\sum _{j=1}^n{\text{Investable Market Capitalization}}_j}\times 100\mathrm{\%}$

The actual calculation incorporates the applicable FTSE Russell methodology.

Investability

Index construction incorporates investability requirements to ensure that the indexes represent securities available to investors.

Factors can include:

• shares outstanding;
• free float;
• ownership restrictions;
• trading eligibility;
• security type;
• listing requirements.

The applicable investability adjustments can affect both index eligibility and constituent weighting.

Free float

Free float refers broadly to the proportion of a company's shares considered available to public investors.

A simplified representation is:

$\text{Free-Float-Adjusted Market Capitalization}=\text{Market Capitalization}\times \text{Free Float Factor}$

The detailed treatment of free float and investability is determined by the Russell index methodology.

Rules-based construction

Russell US Indexes are constructed using transparent, rules-based methodologies.

Companies are classified according to objective criteria such as market capitalization and investability rather than being selected primarily through discretionary committee decisions.

This rules-based approach allows the indexes to adjust systematically as the relative size and characteristics of companies change.

Reconstitution

Russell US Indexes are periodically reconstituted to reflect changes in the U.S. equity market.

Reconstitution can result in:

• additions;
• deletions;
• changes in index membership;
• changes in constituent weights;
• movements between capitalization segments.

Companies can therefore move between Russell indexes as their relative market capitalization changes.

Index calculation

A simplified market-capitalization-weighted index calculation is:

$\text{Index Value}=\frac{\sum _{i=1}^n{\text{Investable Market Capitalization}}_i}{\text{Index Divisor}}$

The index divisor can be adjusted for corporate actions and other events to preserve continuity in the index.

Growth and value classification

Russell style indexes classify companies according to characteristics associated with growth and value investment styles.

Growth-related characteristics can include measures such as:

• expected long-term growth;
• historical sales growth;
• price-to-book characteristics.

Value-related characteristics can include measures such as:

• price-to-book ratios;
• earnings-to-price ratios;
• dividend yield.

The specific variables and weighting methodology are determined by the applicable Russell style methodology.

Benchmark applications

Russell US Indexes are widely used as benchmarks for investment portfolios.

They can be used for:

• performance measurement;
• portfolio management;
• asset allocation;
• passive investment;
• investment research;
• risk management.

A simplified active-return calculation is:

$\text{Active Return}=\text{Portfolio Return}-\text{Benchmark Return}$

Investment products

Russell US Indexes can serve as underlying benchmarks for financial products including:

• index funds;
• exchange-traded funds (ETFs);
• futures;
• options;
• structured products;
• other index-linked investments.

An investment product designed to track an index may experience tracking error because of fees, transaction costs, taxes, cash holdings, and other factors.

Importance

Russell US Indexes provide a systematic framework for measuring different segments of the U.S. equity market. The family includes broad-market benchmarks such as the Russell 3000, large-cap benchmarks such as the Russell 1000, small-cap benchmarks such as the Russell 2000, and more specialized capitalization and investment-style indexes.

The indexes are widely used in portfolio management, investment benchmarking, passive investment, asset allocation, and financial research.

See also

• Russell 1000
• Russell 2000
• Russell 3000
• Russell Top 200
• Russell Midcap
• Russell Microcap
• Russell 1000 Growth Index
• Russell 1000 Value Index
• Russell 2000 Growth Index
• Russell 2000 Value Index
• FTSE Russell
• Stock market index
• Market capitalization
• Free float
• Index fund
• Exchange-traded fund
• Benchmark (finance)
• Portfolio management
• Passive management
• Asset allocation