May 22, 2024

Untangling the differences between the Russell 1000 Index® and S&P 500

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  1. Overview
  2. Research and Insights

Both the Russell 1000 and the S&P 500 are treated as the barometers of the US stock market; however, the two indices are different by design. The Russell 1000 follows a straightforward and transparent methodology, whereas the S&P 500 is presided over by a committee that makes decisions on stock inclusion and exclusion. These differences in methodology often lead to a lag in the S&P in stock inclusion timeline.

What does our research mean for investors?

We help investors understand the methodology differences between the Russell 1000 and the S&P so that they can efficiently and accurately select the right index as their benchmark based on their objectives and purposes.

Points of differentiation - Russell 1000 and the S&P 500:

  • The Russell 1000 possesses a more straightforward and transparent methodology, compared to S&P 500’s committee decision on stock inclusion and exclusion
  • The design of quarterly IPO additions in the Russell 1000 allows the inclusion of newly listed US stock prior to the annual reconstitution in June, as long as they meet the criteria

Key takeaways:

  • The inclusion timeline of eligible stocks differs in the Russell 1000 and S&P 500 primarily due to the differences of index methodologies
  • Companies join the Russell 1000 when they meet the index inclusion rules, the fastest growing companies could be added to the index months after its IPO
  • 14 Companies were added to the S&P 500 in 2023, however, some of these stocks were listed on exchanges years ago, and some of them had long been leaders in their respective industries prior to 2023
  • The inclusion timeline of eligible stocks differs in the Russell 1000 and S&P 500 primarily due to the differences of index methodologies. 

The chart below shows the impact this can have on performance, click on the bars to see the IPO date and when the stock was added to each index.

  • In 2023, 14 companies were added to the S&P 500. Blackstone, Airbnb, Lululemon and Uber were big names among the new joiners, which were added to the index from September 2023 through December 2023. However, these stocks were not fresh faces in the market. They were all listed years ago, with the earliest IPO from Blackstone traced back to 2007, and some of the companies had long been leaders in their respective industries prior to 2023.

    For example, Blackstone, Airbnb, Lululemon and Uber have been in the Russell 1000 for years; they joined the index in 2021, 2022, 2015 and 2019 respectively. Notably, Uber was added to the Russell 1000 within 2 months after its IPO as part of the 2019 June annual reconstitution process, and has recorded 74% cumulative total return from the inclusion date to end of Mar 2024. Similarly, additional companies joined the Russell 1000 index once they met the index inclusion rules.

    Differences in performance from the timing of index additions – Russell 1000 vs S&P 500

    Stock IPO date Added to Russell 1000 (A) Added to S&P 500 (B) % cumulative total return
    of the stock from A to
    Mar 2024    		 % cumulative total return
    of the stock from B to
    Mar 2024
    Blackstone Jun 21, 2007 Jun 28, 2021 Sep 18, 2023 32.36% 14.86%
    Airbnb Dec 10, 2020 Jun 27, 2022 Sep 18, 2023 62.52% 15.72%
    Lululemon Athletica Aug 3, 2007 Jun 29, 2015 Oct 18, 2023 502.85% -3.69%
    Uber Technologies May 9, 2019 Jul 1,
    2019    		 Dec 18, 2023 73.91% 24.72%

    Source: FTSE Russell, S&P Dow Jones Indices, LSEG Workspace. Data as of 29 Mar 2024.

  • 1. Committee decision and rules-based selection differentiate the two indexes.

    While the S&P 500 is constructed by a committee at S&P Dow Jones Indices, the rules for inclusion to the Russell 1000 are straightforward and transparent:

    • The companies in the S&P 500 are chosen by active decisions based on various factors, including market capitalisation, liquidity, profitability, and industry representation from time to time with short notice to the market. Typically, the committee waits years to add a stock to the S&P 500, long after the stock has become one of the largest 500 by size in the US equity market. The profitability requirement also stops the inclusion of companies who are not profitable yet but are capable of delivering positive stock returns.
    • The Russell 1000 reconstitution takes place annually in June, based on rules that take into consideration nationality, market capitalisation and liquidity. Index rules are public, and the rebalancing schedule is communicated to the market well in advance.

    2. Quarterly IPO Additions rule matters.

    • S&P 500’s intermittent, subjective process also affects how initial public offerings (IPOs) are added to the index. In contrast, the Russell 1000 adds eligible IPOs every three months, following the Quarterly IPO Additions rule in the Russell US Indexes construction methodology. The quarterly IPO additions process allows the inclusion of newly listed US stocks prior to the annual reconstitution in June, as long as they meet the criteria.
    • Tech stocks like Microsoft, Amazon, Netflix, and Alphabet (Google) were added to the Russell 1000 as much as a decade before they were added to the S&P 500. In the cases of Amazon, Microsoft and Tesla, the stock prices gained 3000-17000% between entering the Russell 1000 and joining the S&P 500.
    • Companies are often added to the S&P 500 when they are at their highest values or after they have long been one of the largest 500 stocks in the US equity market, as observed with the addition of Tesla to the S&P 500. Tesla was added to the S&P 500 in December 2020 while Tesla’s price was at a relatively high level. Following its addition to the S&P 500, Tesla recorded a -18.8% return, between December 2020-March 2024.
    • Over the last 10 years, more than 1,235 IPOs were added to the Russell US Indexes.

    The impact of the methodology differences noted above are also reflected in the attribution analysis between the Russell 1000 and S&P 500 and detailed in our paper.

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