What is the Russell 3000 index? All you need to know
The Russell 3000 Index is an FTSE Russell index that measures the top 3,000 firms in the United States. It accounts for 98 percent of the investable equity market in the United States.
Continue reading to learn more about the Russell 3000 Index, including its operating, limitations, and differences from other indexes.
What is the Russell 3000 index?
Russell 3000 is a stock market index, ranking the top 3,000 publicly traded companies in the United States by the criteria of market capitalization. The Russell 3000 accounts for roughly 98 percent of all U.S. equities due to its broad participation.
Each year in May and June, the index’s composition is such that there is consistency for both new and expanding companies that may enter the index and diminishing companies that may leave it.
Furthermore, the FTSE Russell Group, which manages the Russell family indexes, evaluates all newly qualified firms that come up with an IPO (Initial Public Offering) – owing to which, there may be 3000 companies on the index.
Functioning of the index
The index’s operation is based on objective criteria that accurately gauge performance and economic hazards. All securities must be available for trading on one of the following U.S. exchanges: CBOE, NYSE, NYSE American, NASDAQ, or ARCA are examples of stock exchanges.
7 SPACs, limited liability corporations, royalty trusts, and business development companies are among the firms not allowed to participate.
SPACs, limited liability corporations, royalty trusts, and corporate development companies are among the firms that are not allowed to participate. Other qualifying criteria to assess for inclusion in the index.
1. Closing price
On the day the index rates firms, stock closing prices have to be at or above $1. If it’s less than $1, the average daily closing price for the previous 30 days has to be at least $1.
2. Total market capitalization
To be considered for inclusion, businesses must have a total market value of $30 million or more.
3. Available shares
A minimum of 5% of a company’s shares must be available in the market.
Let’s look at the sectoral weightings and some companies in the index
|Alphabet Inc Cl A (Google)||GOOGL|
|Alphabet Inc Cl C (Google)||GOOG|
|Meta Platforms Inc||FB|
|Berkshire Hathaway Inc||BRK.B|
|JPMorgan Chase & Co||JPM|
|Note: Google appears due to diverse share classes.|
The Russell 3000 index limitations
The Russell 3000 ranks companies based on their closing price, total market capitalization, available shares, etc. However, it does not have a profitability criterion like other indexes, as the S&P 500 does.
Some Russell 3000 companies have not been profitable for four straight quarters. Investors should keep this in mind when evaluating the companies in the Russell 3000 index.
How to make money in the Russell 3000 index?
While buying individual shares of each firm represented in the Russell 3000 index is feasible – it is very time-consuming for the average investor. It’s significantly easier to buy an exchange-traded fund (ETF) or an index fund that tries to replicate the index’s performance by holding the equities of its thousands of component companies.
iShares Russell 3000 ETF and Vanguard Russell 3000 ETF are some ETFs that invest in Russell 3000 index. Along with ETFs, mutual funds like Vanguard Russell 3000 Index Fund and iShares Russell 3000 Index Fund invest in the above-said index.
Should you put your money in the Russell 3000 index?
The Russell 3000 index monitors the overall market but may over-represent large-cap firms due to its weighting – it may not be a negative thing when assessing the economy’s performance, as these businesses are significant drivers of the economy’s movement.
However, if you’re using it as part of a broader index-fund-based investing plan that typically contains a perfect balance of large-cap, mid-cap, and small-cap firms, you may want to add additional indexes.
With this in mind, you may want to invest in the Russell 1000 and Russell 2000 indexes independently from the Russell 3000 – allowing you to obtain exposure to (almost) the entire spectrum of U.S. companies while retaining the opportunity to better adjust your large-cap to the small-cap and mid-cap ratio by purchasing extra Russell 2000 funds.