Benchmark indexes by Russell are set to undergo this week, with the past year’s unprecedented rally in AI-related stocks expected to leave a major impact on the indexes’ final composition.
The Russell Reconstitution, known for creating one of the busiest trading days annually, will be finalized after the closing bell on Friday. This event concludes FTSE Russell’s multi-step process for the yearly refresh of its indexes, prompting fund managers to adjust their portfolios to match the new weightings and components.
This annual update affects various Russell indexes, including the Russell 1000 index of large-cap stocks and the index of small-cap stocks, which together form the Russell 3000 index. It also includes style indexes like the Russell 1000 Growth and Russell 2000 Value indexes.
According to Wells Fargo analysts, R1000 is expected to see “very little change to its stock, sector, and factor profiles.”
Meanwhile, R1000 growth will see a nearly 3% jump in its information technology allocation, intensifying investors’ already significant underweight in the tech sector, likely triggering additional sector buying, analysts noted.
Health Care’s post-rebalance weight is anticipated to decrease by approximately 2%, further increasing the sector’s underweight to around 3%. The Russell 1000 Growth index will become more concentrated with a greater bias toward the Momentum factor, analysts added.
Russell 1000 value, on the other hand, should see an uptick in Healthcare and Consumer Discretionary allocations, and a decrease in Financials.
“The revisions are expected to bring active Value PMs closer to the benchmark’s sector weighting,” Wells Fargo wrote. “Note that the R1V is a more equal-weighted index than the R1G (or SPX), which we believe creates a more attractive benchmark for active managers.”
For the Russell 2000, Wells Fargo noted that the index is shifting from Information Technology to Healthcare and Financials, making it more contrarian and less expensive. The top-10 concentration drops from 5.9% to 3.4% due to SMCI and MSTR moving to the Russell 1000.
Analysts see the Russell 2000 Growth witnessing a significant shift from Information Technology and Staples to Healthcare, Industrials, and Financials, reducing its Size and Growth factors.
Lastly, the Russell 2000 Value index is poised to see declines in Energy and Industrials, becoming the most contrarian of the six indices.
Investing.com
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