Catherine Yoshimoto
Every year, “rank day” marks the beginning of our annual Russell Reconstitution. It’s the day we rank all eligible US securities by their total market capitalization and consider any additional eligible stocks for index inclusion. It can also be an occasion to examine what Russell Index performance looked like over the past year—and what story it tells about the preceding year in US equity markets.
This year rank day fell on May 6, and unlike the 2021 recon narrative of widespread recovery across all US equities, the 2022 story is largely about inflation fears.
Inflation concerns reflected in industry performance
Inflation fears have gripped consumers and investors alike—and with good reason. Persisting global supply chain disruptions and soaring commodity prices have spurred rising inflation over the past year. In fact, if we look at inflation levels that markets are pricing over the next 10 years, inflation is expected to be above average over the coming decade[1].
The prospect of rising inflation has taken a toll on US equity market performance, particularly in 2022. For the year-to-date period ending May 6, the Russell 3000 Index declined 14.2%. And after soaring from pandemic lows in the previous year, the index ended the one-year period down 3.6%.
However, US equities haven’t suffered uniformly across industries. A closer look at performance for the one-year period reveals that growth-oriented industries such as Consumer Discretionary took the biggest hit, while value-oriented industries that tend to resist inflationary pressures fared the best.
Russell 3000 Industry performance
Source: FTSE Russell as of May 6, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Of all the industries that outperformed the broader Russell 3000 Index over the past year, Energy is a particular standout. Energy posted a staggering 61.4% for the period—over five times what the second highest performing industry returned. As energy stock performance is naturally tied to energy prices—and energy prices are an important component of the US Consumer Price Index—it stands to reason that the Energy industry would outperform during inflationary environments.
Value secures its lead in 2022
As the value-oriented industries have been the winners during this inflationary period, it should perhaps come as no surprise that value stocks have continued to outpace growth stocks for both the year-to-date and one-year periods. As shown, while all Russell US Style Indexes were in flat-to-negative territory for both periods, the value indexes outperformed their growth counterparts by a considerable margin.
Russell Style Index comparison
Source: FTSE Russell as of May 6, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
The next chapter of the story is on June 3
While this look in the rearview tells the story of the preceding year in US equity markets, much of the 2022 Russell Recon story has yet to be told. Beginning on June 3, we’ll communicate preliminary lists of index additions and deletions to the marketplace. Final changes will go into effect after the close on Friday, June 24.
Please see our announcement for more details on the 2022 reconstitution timeline.
Disclaimer
© 2023 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe Limited (“FTSE FI Europe”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) The Yield Book Inc (“YB”) and (7) Beyond Ratings S.A.S. (“BR”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “The Yield Book®”, “Beyond Ratings®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.
All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products, including but not limited to indexes, data and analytics, or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance.
No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset nor confirmation that any particular investor may lawfully buy, sell or hold the asset or an index containing the asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.
This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB, BR and/or their respective licensors.
