The Russell 3000 Index

by Amanda Harvey

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What is the Russell 3000 Index?

The Russell 3000 Index is an important index which measures the performance of the top 3000 publically listed companies in the US. The companies listed on the index account for approximately 98% of the total for the US markets. The aim of the Russell 3000 is to provide a steady, thorough and impartial gauge of the wide market. In order to maintain this accurate depiction of the market, the index is fully reconstructed on a yearly basis, ensuring that the index reflects the significance of new or expanding entities in the marketplace.

Which Other Indexes Comprise the Russell 3000?

The Russell 3000, which is a listing of the 3000 top-performing US companies, is actually comprised of two other indexes from the Russell Investments group. The first is the Russell 1000 which comprises the high-cap sector – the top 1000 companies - of the US market and accounts for a massive 92% of the equities investment total. The other index incorporated in the Russell 3000 is the Russell 2000. This index covers the small-cap sector – the companies ranked from 1001 to 3000 in the US. The investment value represented by this index is roughly 6% of the total.

History of the Russell 3000 Index

The Russell Indexes were first presented in 1984, and were ground-breaking in a couple of ways. They were the first indexes which separated the market into large-cap and small-cap sectors. The indexes were also the first to offer both an investable and wide portrayal of the market. Prior to the introduction of the Russell Indexes, the available market gauges were the S&P 500 Index and the Wilshire 5000 Index. The S&P 500 Index was, and still is, comprised of a selection of companies chosen by a committee, offering only a partial representation of the market. The Wilshire 5000 Index offered a very broad view of the market, however, given that many of the companies listed were illiquid, did not act as a valid investment measure.

Almost 30 years later, in December 2013, Russell Indexes were being used as performance benchmarks for more than 75% of US institutional assets.

Annual Reconstitution of the Russell 3000 Index

Since their inception, the hallmark of the Russell Indexes has been their total reconstitution in June of each year. This ensures that the indexes continue to correctly portray the existing state of equity markets and their segments.

This annual reconstruction has become an influential event in the financial sector, and is watched closely by money managers and brokerages alike. These observers adjust their portfolios, prepare for large trades, and increase their inventory based on the changes they anticipate in the reconstitution of the Russell 3000 Index and the other Russell Indexes.

Conclusion

The Russell 3000 Index has proven, over time, to be a valuable gauge of investment opportunities in the US markets. Offering a broad depiction of the wide market, the index is kept accurate and up-to-date with its highly-respected yearly reconstitution.


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