On June 28th local time, the US stock market's Russell index series ushered in a significant annual rebalancing. The rebalancing takes place on the last Friday of June every year, when index provider Frank Russell will re-adjust the constituent stocks of each index according to factors such as market capitalization and liquidity.

According to indicators such as country, region, industry, and scale, Russell Index has more than 300 sub-indexes, among which the most important ones are the Russell 1000, Russell 2000, and Russell 3000 indexes.

As of the end of 2023, about 10.5 trillion US dollars of assets are benchmarked to the Russell US Index, which is self-explanatory. According to Nasdaq data, on last Friday (June 28), the restructuring day this year, the Nasdaq closing cross-matching system created a new record in 0.878 seconds. Completed about 2.9 billion shares of trades worth a total of 953 billion US dollars, setting a new historical high for the Russell index restructuring day.

What changes will the Russell Index ETF investment bring after this adjustment takes effect on Monday, July 1st, when the US stock market opens?

Comparable to S&P 500! Russell 1000 index is more focused on technology

The Russell 1000 Index is compiled by taking the weighted average of the stocks of the top 1000 companies with the highest market capitalization in the Russell 3000 Index, reflecting the basic situation of the largest listed companies in the United States, and belongs to the "large-cap stock index" in relative terms.

ETFs that track the Russell 1000 Index in the US stock market include:$Ishares Russell 1000 Etf (IWB.US)$, $Vanguard Russell 1000 ETF (VONE.US)$Both ETFs have risen more than 14% so far this year, and have risen more than 45% in two years, which is roughly on par with the S&P 500 index and a group of ETFs.

After the index rebalancing, the Russell 1000 Index will be more focused on technology. After the reshuffle, the total weight of the top ten companies in the Russell 1000 Index will reach 34.3%, the highest level in 40 years. Microsoft replaces Apple as the company with the largest market capitalization in the index, and Nvidia has surpassed Amazon to rise to third place. Broadcom's ranking has risen from 24th to 9th place, and it has entered the top ten for the first time.

After the adjustment, the overall weight of the technology industry in the Russell 1000 will reach 36.1%, the highest level since the index was compiled in 1984. At the beginning of the year, the weight of technology stocks in the index was only 14.2%, and it was the third largest sector after non-essential consumer goods and energy.

What is worth noting is that Russell 1000 will also introduce the "top student" from the Russell 2000 Index. Due to the increase in market capitalization driven by the rise, the former small-cap leader has entered the constituent stocks of the Russell 1000 Index, becoming a "large-cap stock." The gains of these three stocks this year are 188%, 118%, and 143%, respectively.$Super Micro Computer (SMCI.US)$, $MicroStrategy (MSTR.US)$, $Carvana (CVNA.US)$Indrani De, head of global investment research at FTSE Russell, said that this transformation reflects the changes in the nature of the US economy. The increase in the weight of technology stocks indicates that the US economy is developing around technology, and the contribution of technology companies to economic growth is becoming more and more significant.

Undervalued! Value stocks and small-cap stocks show investment opportunities

In fact, the most well-known index in the Russell index is the Russell 2000 Index. The Russell 2000 Index is compiled by taking the weighted average of the stocks of the smallest 2000 companies in terms of market capitalization in the Russell 3000 Index, with a market value of only about 10% of the Russell 3000 Index. Therefore, it is considered to be the most important index that can represent small-cap stocks in the US market and has received much attention from the market and the media.

However, most of the gains in the US stock market this year were led by technology giants, and the Russell 2000 index only recorded a 1% increase this year, and the two-year increase was only about 16%, which was far behind large-cap stock indexes such as the Russell 1000 and the S&P 500 index.

However, most of the stock market's gains this year have been led by technology giants. The e-mini Russell 2000 index has only recorded a 1% increase this year, with a two-year increase of about 16%, far behind large-cap stock indexes such as the Russell 1000 and S&P 500 indexes.

Out of the 243 small cap companies newly included in the index, 41 belong to the medical care industry. After rebalancing, the industrial sector will be the largest industry in the Russell 2000 index, accounting for 19%; followed by the medical care industry, which has the highest percentage increase from 14.7% to 16%; while the technology industry has the largest decrease, falling from 13.7% to 11.3%. Fiona, the CEO of FTSE Russell, commented that the Russell 2000 index will "be more like a medical care stock".

After previous reorganizations, the Russell index was able to achieve varying degrees of increases. As an example, since July last year, the Russell 1000 Growth Index and the Russell 1000 Index have grown the fastest, with increases of 20%-30%; but the Russell 1000 Value Index and the Russell 2000 Index have remained relatively calm.

However, the sharp rise of large-cap technology stocks has also caused concerns about a correction. Compared with this, small-cap and value stocks are currently undervalued and have less "technology content", which may become a diverse choice to hedge against the overheating of technology stocks.

Historically, small-cap stocks have also taken off in markets where the rally was too concentrated. Deutsche Bank's global head of economic research, Red, pointed out that the current situation of the US stock market is like the early 1970s. At that time, large-cap companies had strong cash flows and good business performance. However, over time, the performance of these companies failed to meet market expectations, causing the stock prices to start falling, and the prices of small-cap stocks that were not favored at the time began to take off. Since 1974, US small-cap stocks have started to outperform large-cap stocks for nearly 10 years.

"Will history completely repeat itself? It's hard to say. But we have a similar situation today, with unfavored small-cap stocks and highly concentrated large-cap companies, as well as looser Federal Reserve policies, which create a positive backdrop."

Currently, there are ETFs and leveraged ETFs linked to the Russell 2000 Index:$iShares Russell 2000 ETF (IWM.US)$, $Proshares Trust Pshs Ultruss2000 (UWM.US)$, $Proshares Trust Ultrapro Russell2000 (URTY.US)$, $ProShares UltraPro Short Russell2000 ETF (SRTY.US)$, $Global X Russell 2000 Covered Call ETF (RYLD.US)$.

ETFs related to value stocks in the Russell index:$Ishares Russell 1000 Value Etf (IWD.US)$, $Vanguard Russell 1000 Value ETF (VONV.US)$, $Ishares Russell 2000 Value Etf (IWN.US)$, $Vanguard Russell 2000 Value ETF (VTWV.US)$.

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