Understanding of the Russell 1000 & the Russell 2000 Indexes
The term Russell 1000 Index refers to a stock market index used by investors as a benchmark. It’s a subset of the more significant Russell 3000 Index and represents the top 1,000 companies in the U.S. by market capitalization.
Market capitalization refers to the total value of all shares of a company. We calculate this by multiplying the stock price by the total number of shares outstanding.
The Russell 1000 is owned and operated by the UK-based FTSE Russell Group. Russell 1000 is the vane of large-cap investment.
How does the company determine Russell 1000 rankings?
To determine the holdings of Russell 1000, the company ranks all stocks in Russell 3000 according to market cap. Then, it determines the market capitalization breakpoint of the 1000th stock ranking.
This breakpoint is the principal market value that determines index eligibility. Many stocks are swapped between Russell 1000 and Russell 2000 during the annual reorganization. Still, changes around market value breakpoints are the decisive factor.
The ingredients of Russell 1000 are reorganized every May. However, newly listed stocks are considered for inclusion in an initial public offering (IPO) every quarter.
When new companies go public, they will go into the index every quarter if these stocks exceed the market value threshold. For this reason, Russell 1000 may list more than 1,000 stocks.
Below, we will show the top 10 Russell 1000 companies by market capitalization according to April 30, 2021 data.
- Apple (AAPL)
- Microsoft (MSFT)
- Amazon (AMZN)
- Facebook (FB)
- Alphabet Inc CI A, Google (GOOG)
- Alphabet Inc CI C, Google (GOOG)
- Tesla (TSLA)
- Berkshire Hathaway (BRK.A)
- JP Morgan Chase & Co. (JPM)
- Johnson & Johnson (JNJ)
What is the Russell 2000 Index?
The Russell 2000 Index tracks the 2,000 listed companies with the smallest market capitalization in its parent company, the Russell 3000 Stock Index. The remaining 1,000 companies are in the Russell 1000 large-cap index.
Because small-cap companies like those in the Russell 2000 index account for a much smaller share of the U.S. stock market than large-cap stocks, the companies in the Russell 2000 index account for about 10% of the total market capitalization of the U.S. stock market.
In contrast, Russell 1000’s large-cap stocks account for approximately 92% of the U.S. stock market.
How does the company determine Russell 2000 rankings?
To determine which companies are on the list, the FTSE Russell Group ranks each company in the Russell 3000 according to market capitalization. Then, it divides the top one-third of the companies into the Russell 1000 index and the bottom two-thirds into the Russell 2000 index.
Every May, the FTSE Russell Group will reassess the company to determine whether their current placement is reasonable. So it is because companies will change size or fold over time, and new companies may launch, too, worthy of including in the index.
Between annual ranking days and reorganizations, eligible companies listed through initial public offerings (IPOs) can be added to the Russell 2000 index every quarter. Therefore, Russell 2000 may sometimes track more than 2,000 stocks.
Below you will see the top 10 Russell 2000 companies by market capitalization according to April 30, 2021 data.
- Caesars Entertainment (CZR)
- Novavax Inc (NVAX)
- Penn National Gaming (PENN)
- Plug Power (PLUG)
- Darling Ingredients (DAR)
- Restoration Hardware (R.H.)
- Lithia Motors (LAD)
- Gamestop (GME)
- Corp Builders Firstsource (BLDR)
- Deckers Outdoor (DECK)
How can you invest in Russell 1000 & Russell 2000?
Investors can recreate the Russell 1000 or Russell 2000 by individually purchasing each company’s stocks in the index. However, it is much easier to invest in the Russell 1000 or Russell 2000 exchange-traded fund (ETF) or index fund designed to replicate the index’s performance.
Many brokerage companies offer Russell 1000 & 2000 ETFs and index funds. However, you cannot purchase Russell 1000 & 2000 funds directly from the FTSE Russell Group.
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