Russell US Indexes moving to a semi-annual index reconstitution frequency

This paper provides an analysis of FTSE Russell’s proposal to transition the Russell US Indexes from an annual to a semi-annual reconstitution frequency.

In the analysis, we highlight two of the principal goals of the Russell US Indexes—maintaining an accurate representation of the US equity market and ensuring the practical usability of the indexes as performance benchmarks. We discuss how to balance the design choices necessary to achieve those goals.

The Russell US Indexes are designed to represent the US equity market objectively, based on constituents’ market capitalisation and style. Currently, the Russell US Indexes, including the Russell 1000®, Russell 2000®, and Russell 3000® indexes, reflecting the largest 1000, 2000, and 3000 companies, are reconstituted annually in June.

While annual reconstitution ensures accurate representation at a single point in time, market conditions and valuations change continuously. This leads to an inevitable drift over time in the characteristics of individual stocks and of the market as a whole. Where to strike the balance between the Russell US Indexes’ joint objectives of maintaining representation and constraining turnover may therefore also need to change.

Recent periods of increased market volatility and dispersion, coupled with a strong expansion of assets benchmarked to Russell US Indexes, have highlighted the need for a more regular and responsive approach to index reconstitution.

This paper provides:

1. Background on current reconstitution methodology: An explanation of the existing annual reconstitution process, its principles, and the rationale behind maintaining accurate market representation.
2. Market participant overview: An assessment of the key stakeholders who use, support, and track the Russell Index family, including their operational needs. This includes feedback collected during a market consultation conducted on the reconstitution frequency.
3. Market depth analysis: An examination of market liquidity to assess the feasibility of implementing a second reconstitution, including the capacity to absorb additional trading activity.
4. Turnover and cost analysis: A detailed evaluation of potential turnover impacts, associated costs, and transaction cost analysis under a semi-annual reconstitution scenario.
5. Operational changes and implementation: Recommendations for operational adjustments required for semi-annual reconstitution, including process changes, risk management, and resilience testing to ensure successful execution.
6. Conclusion and recommendation: The paper concludes with a recommendation for the Russell US Indexes to adopt a semi-annual reconstitution frequency starting in November 2026, the data to support this recommendation, and a proposed timeline for the implementation of the change, including a parallel run in November 2025.