Russell 3000 Index

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The Russell 3000® Index is a benchmark measurement of the 3,000 largest and most frequently traded U.S. stocks and is aimed at reflecting overall market return. The index members' total market capitalization represent almost all the investable equity on U.S. markets.

Brief Background

The Russell 3000 Index was created in 1984 by Frank Russell Company - now Russell Investments - to give investors "a comprehensive, unbiased, and stable barometer of the broad market"[1]. It also trades as two of its component sectors - the large-cap Russell 1000 Index and the smaller-cap Russell 2000 Index - both of which are better known than the main index they derive from.[2]

Today's Market

As of May 2013 the largest company in the Russell 3000 Index had a market cap of $422 billion while the smallest was $129 million. The Russell 3000 covers approximately 98 percent of the U.S. stock market.[3]

iShares Russell 3000® Index Fund Russell 3000's main competitors at the top end of U.S. stock indexes are the S&P 1500 Index and the Wilshire 5000 Index, although both vary in key ways from the Russell 3000. The S&P 1500 has half the number of stocks and screens stocks for creditworthiness, while the Wilshire 5000 has 2,000 more stocks but not all are readily tradable on public markets.[4] As with its smaller sibling the Russell 2000, investors often use iShares,[5] an exchange traded fund (ETF) developed by Barclays Global Investors, to take positions on the Russell 3000.

Other investors prefer futures and options contracts on the Russell 3000 to trading the index directly, believing that derivatives better reflect its true value. Trading futures and options contracts on the index was previously spread over nine different exchanges but from September 2008 they, along with all other Russell Index-based products, will be traded exclusively on the InterContinental Exchange.[6]

Trading Facts

  • The index is 'reconstituted' annually every June to account for changes in the marketplace like stock-value growth and acquisitions.
  • The value of Russell 3000 has dropped significantly in 2008 but has recorded 5-year returns of 12.07% and earnings-per-share growth of over 20% over the same period.
  • Exxon-Mobil currently has the largest market cap of the Russell 3000 Index members but General Electric's stock comprises the highest percentage (2.8%) of the Index's value.

2012 Reconstitution

The Reconstitution of the index for 2012 was largely shaped by changing market dynamics and the decreased market performance, the median market capitalization will decrease from $1.04 billion to $910 million. [7] The financials sector holds the largest market share of 17.1% with tech having the largest increase due to the growth of Google and the addition of Facebook into the index. The Reconstruction will add 77 companies to the index overall.

References

  1. Russell 3000 Fact Sheet. Russell Investment Group.
  2. Russell 3000 Index. StreetAuthority.com.
  3. Russell U.S. Indexes. Russell Indexes.
  4. Russell: Behind the Benchmark. Ticker Magazine.
  5. iShares Russell 3000 Index Fund. Fidelity.com.
  6. Russell Index Futures Only on ICE. InterContinental Exchange.
  7. Index Reconstitution. russell.com.