Reconstitution frequently asked questions
Q: Why does FTSE Russell fully reconstitute its entire series of Russell Indexes?
A: FTSE Russell believes indexes are designed to represent the entire investable opportunity set. Because markets continually change, there must be a systematic procedure in place to keep the indexes’ representation of the markets or market segments reflective of new market information. Fully reconstituting the indexes annually plus adding eligible IPOs (initial public offerings) quarterly and applying daily and monthly adjustments maintains the representative nature of the indexes while avoiding the unnecessary turnover a more frequent full reconstitution could cause.
Q: Why don't you reconstitute the indexes more often than once a year?
A: Maintaining representative indexes must be weighed against the cons associated with making frequent changes to index constituents. In other words, an index must balance the precision of representation with practical and acceptable levels of turnover.
Russell research and Russell client sentiment has supported the annual rebalance schedule, as it strikes a reasonable balance between accurate representation and cost. We originally reconstituted the indexes quarterly, then semi-annually. Our extensive research demonstrates that annual reconstitution continues to accurately represent the broad market and the market capitalization segments while minimizing the turnover required to reflect market changes.
*FTSE client sentiment supports the implementation of semi-annual rebalances for the FTSE Global Equity Index Series (FTSE GEIS). FTSE Russell will continue to engage with clients via consultations to determine if changes to either methodology are necessary. There are no current plans to change the current rebalance process for either series.
Q: When is reconstitution this year?
A: The 2016 reconstitution of the Russell Indexes will occur June 24. All Russell index families will be reconstituted simultaneously (except Russell/Nomura and Russell Australia Indexes). Provisional indexes will be published beginning on June 10 to allow investors to track the new indexes prior to the reconstitution effective date. This allows investors the option to choose the date on which they execute their index trades.
Q: What's the basic process?
A: On rank day in May (this year May 27), all eligible securities globally are ranked by their total market capitalization. Companies whose stocks are listed on eligible stock exchanges in eligible countries and who pass minimum liquidity and other investability rules are considered for inclusion in the indexes. Beginning on June 10, preliminary lists of additions and deletions to the indexes are communicated to the marketplace. These changes go into effect after the close on Friday, June 24. All Russell indexes are sub-indexes of the Russell Global Index.
Q: Can I get more info on the methodology?
A: View FTSE Russell's complete Russell US and Russell Global Index construction and methodology documents available on ftserussell.com.