Russell Indexes

In 1984, a team from Russell used insights about investment management behavior to launch the Russell Indexes. These new tools were designed to produce indexes that objectively track performance and better reflect investment manager behavior. Over the last 20 years, Russell has been a leading innovator in index design and has continually set industry standards.

The Russell Global Indexes represent the investable global equity market and its segments comprehensively. Consistent with the design of the family of U.S. Russell Indexes, it represents 98% of the global equity market. Our modular approach supports a broad spectrum of sub-indexes based on country, region, sector and capitalization size covering over 10,000 securities in 48 countries.

Timeline

Current

Float adjustment is industry standard.
Multi-factor style methodology is industry standard.
Use of NASDAQ Closing Cross is industry standard.

• 2011

Introduce Stability Indexes™, the Third Dimension of Style™.

• 2010

Create Equal Weight Indexes: equally weights each sector within an index and then equally weights securities within each sector.

Russell is the first index provider to employ an objecive, rules based approach for determining country assignment.

• 2009

Spearhead Target Date Metric: a metric to measure the relative performance of target date fund families against their primary goal of building wealth for retirement.

• 2007

Launch the Russell Global Indexes, to better replicate the performance of investable stocks globally with broad, deep and fully modular construction.

Develop a consistent global-relative standard for determining capitalization breaks globally.

• 2006

Launch growth and value styles for the Russell Microcap® Index.

Enhance treatment of corporate actions as a service to benefit passive investors.

• 2005

The Russell Microcap Index is introduced to measure the performance of the microcap segment of U.S. Equity Market.

Passive assets based on Russell Indexes surpass $500 billion.

• 2004

NASDAQ closing cross pricing is used for the first time, dramatically reducing trading costs and improving the efficiency of the Russell Index reconstitution process.

• 2003

Ten years after Russell introduces multi-factor style indexes, multi-factor banded style methodology becomes the global industry standard.

Russell Indexes “crosses paths” with S&P, becoming the most used index family by U.S. institutional investors (products benchmarked).

• 2000

Nearly 20 years after Russell introduces float-adjusted capitalization indexes, float weighting for indexes becomes the global industry standard.

• 1999

The first Exchange Traded Fund (ETF) based on a Russell Index is introduced.

• 1995

Russell and Nomura Securities Co., Ltd., jointly create the family of Russell/Nomura Japan Equity Indexes.

• 1994

Russell’s in-depth manager research leads to the creation of multi-factor style indexes to better reflect the fact that some stocks have both growth and value characteristics.

• 1989

Russell shifts to an annual index reconstitution process. This new process helps balance turnover costs for investors while accurately reflecting changes in market segments over time.

• 1987

Russell creates the first style indexes in the world for investment managers who purchase primarily “growth” or “value” stocks.

• 1984

The family of Russell U.S. Indexes is introduced to the market, including the large-cap Russell 1000® and the small-cap Russell 2000®, the world’s first index family to reflect the investable portion of the investable U.S. equity market.

Russell introduces quarterly index reconstitution to ensure continuing relevance and objective market representation.

• 1983

Russell pioneers the concept of free-float adjustment and develops an open, transparent index methodology.

Russell Investments, a leader in manager research, analyzes the stocks that managers actually buy and determines that existing U.S. equity benchmarks do not effectively measure how well managers are performing.

Russell Global Indexes
Construction & methodology

The Russell Global Index represents the investable global equity market and its segments comprehensively. It consists of more than 10,000 securities in 47* countries and offers over 300 key subindexes. Consistent with the design of the family of Russell U.S. Equity Indexes, it is constructed using float-adjusted market capitalization weights and represents 98% of the investable global equity market.

Purpose

• Offers investors a complete global equity market performance benchmark
• Serves as a proxy for asset allocation purposes
• Provides a replicable vehicle for passive investment portfolios with global exposures

Construction of the investable equity universe

• Screen companies globally by total market capitalization
• Apply minimum size and investability standards, and liquidity screens in order to determine a security’s index eligibility

Determining index membership

• Allocate securities to their home countries (each security is included in one, and only one, country)
• Take the top 98% of companies in the U.S. (Russell 3000® Index) and the top 98% of companies in the rest of the world
• Derive each security’s weight in the index using float-adjusted market capitalization

Determining style index membership

• Rank each stock in the Russell Global Large Cap Index and the Russell Global Small Cap Index by respective variables to determine Valuation (Growth/Value) or Stability (Defensive/Dynamic) styles.
  • Valuation style variables: book-to-price ratio to represent value and I/B/E/S forecast medium-term growth and historical sales per share growth to represent growth.
  • Stability style variables: EPS variability, ROA, and debt-to-equity to represent quality and total return volatility over two time periods to represent volatility.
• Combine variables to create a composite value score (CVS) for each stock. To ensure that turnover remains low, Valuation style implements a band of +/- .10* at the CVS level to prevent the occurrence of smaller, less meaningful movements
• Rank the stocks by their CVS and apply a non-linear probability algorithm to the distribution to determine style membership weights. Roughly 70% are classified as all value or all growth and 30% are weighted proportionately to both value & growth.

Subdivision of global index

• Modular index construction supports a broad spectrum of sub-indexes based on country, region, sector, size or any other customized needs
• Combine macroeconomic and market criteria to create robust classification methodologies for developed and emerging markets countries
• Global-relative approach to index construction results in a classification system that assigns capitalization tiers (small, mid, large) to all companies regardless of domicile, industry or sector