By Caroline Valetkevitch and Chuck Mikolajczak
NEW YORK, June 25 (Reuters) – Investors expect heavy trading volume on Friday to reflect changes to the Russell indexes, including reclassifications for megacaps like Microsoft and the Russell 1000’s “fast-track” addition of SpaceX following the recent IPO.
Fund managers will adjust their portfolios to reflect new weightings in various indexes being reorganized by FTSE Russell in one of its biggest shifts on record.
For the first time in over 30 years, the Russell indexes will be reconstituted twice this year, June and December, instead of just once. The reshuffling will also bring big changes for small-cap stocks. Dozens of smaller firms are moving from small-cap to larger indexes.
This week’s reconstitution could mean a “really massive trade” on Friday, said Steven DeSanctis, an equity analyst at Jefferies in New York. “And the turnover is dramatic. That does argue for twice a year.” Index changes take effect after the U.S. market close on Friday. Trading begins the following Monday.
SpaceX stock will be classified as about 90.4% growth and 9.6% value, which means it will become a big part of growth investments tied to the Russell 1000. Other major stocks affected will be Apple and Microsoft, which will be in the Russell 1000 value and growth indexes instead of just growth.
Historically, an index rebalancing has driven up volumes just before the changes take effect. Also, such moves have affected performance for companies moving from small-cap to larger-cap indexes.
Fresh off the SpaceX IPO, investors will keenly watch how FTSE Russell handles adoption of the fast-entry rule for IPOs which it announced in late May. IPOs of AI companies OpenAI and Anthropic are anticipated later this year.
The NYSE this week issued its customary alert to investors because of the Russell index reconstitution. Catherine Yoshimoto, director of product management for the Russell US Indexes at FTSE Russell, said the June reconstitution brings “no major rule changes” for the indexes.
The total reconstitution day trade is estimated at nearly $150 billion, which is why Friday is a “key liquidity day,” said Melissa Roberts, analyst at Stephens.
The reshuffle will move Amazon.com further into value territory, while Alphabet and Advanced Micro Devices are transitioning to 100% growth and are among the largest removals from the Russell 1000 Value index.
“These companies have gotten larger. They are the market,” said Krishna Chintalapalli, portfolio manager at Parnassus Investments in San Francisco. Some of the changes reflect the ongoing strength in semiconductor and computer hardware companies tied to optimism over AI, according to FTSE Russell. For instance, Micron Technology and SanDisk are being added to the Russell 1000 growth index. Goldman Sachs strategists predicted in a recent note that within the Russell 1000 growth index, semiconductor stocks will experience the largest increases in weight. Some 62 companies are to join the large-cap Russell 1000 index, including 43 moving up from the small-cap Russell 2000. The largest chunk of the new Russell 1000 members are coming from technology and industrials. “This year we have a higher turnover of names that have done really well in the 2000 that are moving up to the 1000,” Roberts said. “The strength in those names has pushed them up.”
One dramatic shift is with Bloom Energy, which is moving from the Russell 2000 index to the Russell 200 megacap index of the 200 largest U.S. companies. The power generation company’s stock is up more than 1000% from a year ago thanks in part to agreements to supply power to AI data centers.
(Reporting by Chuck Mikolajczak and Caroline Valetkevitch in New York, editing by Colin Barr and David Gregorio)
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