Deeper tech-weighting under-weighting expects big growth PMs by Investing.com
Russell’s benchmark indices are expected to take place this week, and last year’s unprecedented rally in AI-related stocks is expected to leave a significant impact on the final composition of the indices.
The Russell Reconstitution, known for creating one of the busiest trading days every year, will be completed after the closing bell on Friday. The event concludes FTSE Russell’s multi-step process for the annual update of its indices, which encourages fund managers to adjust their portfolios to match the new weights and components.
This annual update covers various Russell indexes, including the Russell 1000 index of large stocks and the index of small stocks, including the creation of the Russell 3000 index. It also includes style indexes such as the Russell 1000 Growth and Russell 2000 Value indexes.
According to Wells Fargo analysts, the R1000 is expected to see “very little change in the stock, sector, and its profile.”
Meanwhile, the growth of R1000 will see a jump of almost 3% in information technology shares, reinforcing the reduction of weight of investors already in the technology sector, which may lead to more purchases of the industry, analysts note.
The post-rebalance weighting of Health Care is expected to decrease by approximately 2%, further increasing the sector’s underweight to approximately 3%. The Russell 1000 Growth index will focus heavily on the Momentum factor, analysts added.
The Russell 1000 value, on the other hand, should see gains in the Healthcare and Consumer Discretionary allocations, as well as declines in financials.
“The revisions are expected to bring Value PMs closer to the benchmark industry weight,” Wells Fargo wrote. “Note that R1V is an equal-weighted index to R1G (or SPX), which we believe creates an attractive benchmark for active managers.”
In Russell 2000, Wells Fargo noted that the trend is from Information Technology to Healthcare and Financials, making it more competitive and less expensive. The top 10 concentration decreased from 5.9% to 3.4% due to the SMCI and MSTR moving to the Russell 1000.
Analysts see the Russell 2000 Growth witnessing a significant shift from Information Technology and Staples to Healthcare, Industrials, and Financials, reducing its Size and Growth factors.
Finally, the Russell 2000 Value index is poised to see a decline in Energy and Industrials, which was the biggest reversal of the six indexes.
