Catherine Yoshimoto
- Growth Stock Dominance – The ‘Magnificent Seven’ tech stocks have driven index concentration beyond regulatory fund limits.
- Capping Methodology – From March 24, 2025, Russell US Style Indexes will limit company weight to 22.5% and aggregated weights above 4.5% to 45%.
- Investor Impact – These changes help funds stay within diversification rules while maintaining exposure to high-performing growth stocks.
US growth stocks outperformed value (again) in Q4
After a rebound by US value stocks in the third quarter, growth stocks continued their remarkable performance in Q4 2024, with the Russell 1000 Growth index outperforming the Russell 1000 Value index by 9.2 percent.
The Russell 1000 Growth index includes those Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium-term (2-year) earnings-per-share growth and higher historical (5-year) sales-per-share growth. The Russell 1000 Value index includes those Russell 1000 companies with lower scores on these three metrics.
The latest bout of outperformance by growth stocks added to an already impressive multi-year track record: over the decade to end-2024, the Russell 1000 Growth index outperformed the Russell 1000 Value index by over 7 percent a year.
US Growth stocks rebound in Q4 2024
Style performance
Total return (%)
| Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | 12 months | |
|---|---|---|---|---|---|
| Russell 1000 Growth Index | 7.1 | 3.2 | 8.3 | 11.4 | 33.4 |
| Russell 2000 Growth Index | 1.7 | 8.4 | -2.9 | 7.6 | 15.2 |
| Russell 1000 Value Index | -2.0 | 9.4 | -2.2 | 9.0 | 14.4 |
| Russell 2000 Value Index | -1.1 | 10.2 | -3.6 | 2.9 | 8.1 |
Source: Russell 2000 Index quarterly chartbook, February 2025. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
Pushing up against fund concentration limits
The continuing stock price gains by the ‘Magnificent Seven’—Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms—have caused these US companies to dominate several important market capitalization-weighted indices (as well as boosting the collective weight of US stocks in global stock averages).
Indices reflect the stock markets as they are—they do not pass judgement on whether or not particular stock or sector valuations are correct. Episodes of high index concentration are not new and in the past they have often unwound by themselves. Nevertheless, the rise and rise of the US tech giants has posed an immediate challenge to important segments of the investment industry.
This is because US fund rules set security concentration limits that are designed to ensure diversification and protect fund investors.
For example, Regulated Investment Company (RIC) capping rules for US-registered funds require that the aggregate share of companies with weights greater than 5% be limited to 50% (known as the 5/50 limit), and that no individual company have a weight greater than 25% of the fund.
Investment companies and funds may also need to adhere to a tighter, “diversified company” definition, which is set forth by the Investment Company Act of 1940 (“40 Act”). This implies that the aggregate share of companies with weights greater than 5% be limited to 25% (and is known as the 5/25 limit).
And it’s in the Russell US Style indexes that such concentration concerns have been felt most acutely. As of December 2023, approximately $10.5 trillion in assets were benchmarked to a Russell index, with over half this total following our Style indexes.
By the middle of 2024, tech stock price rises had pushed the aggregate weight of individual index constituents with a weight greater than 5% to 46.1% in the unconstrained Russell 1000 Growth index and to 52% in the Russell Top 200 Growth index.
In other words, a US fund replicating the index weights at that date would have breached the 25% 40 Act concentration limit (as well as the 50% RIC concentration limit in the case of a fund replicating the weights of the Russell Top 200 Growth index).
Aggregate weights of large holdings in representative Russell indexes
Source: FTSE Russell, as of 21 February 2025. Please see the end for important disclosures.
What changes in March 2025?
In August 2024, FTSE Russell conducted a consultation with market participants in response to the recent increase in market concentration within the large- and mega-cap growth indexes.
The feedback we received was generally supportive of capping the standard Russell US Style Indexes and in November we announced how we would be doing this.
Starting on March 21 2025 at market close, FTSE Russell will apply the following capping methodology to the Russell US Style Indexes at each quarterly and annual review: all companies that have a weight greater than 4.5% will represent no more than 45% of the index in aggregate, and no individual company will have a weight greater than 22.5% of the index.
Full details on how we cap company weights are given in our capping methodology guide, but the principal steps are shown in the infographic.
Russell US Style Indexes RIC 22.5/45 Capping Methodology
What changes for the broader, capitalisation-weighted Russell 1000 and Russell 2000 indexes? Nothing. The new capping rules apply only to our Russell US Style indexes.
For those indexes, the incoming changes should help ensure that both individual company weights and the aggregate index weight of larger companies stay within the 25/50 Regulated Investment Company (RIC) diversification limits.
From an index design perspective, this should help take some of the heat out of the recent US growth stock surge.
Read more about
Disclaimer
© 2025 London Stock Exchange Group plc and its applicable group undertakings (“LSEG”). LSEG 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) FTSE (Beijing) Consulting Limited (“WOFE”) (7) Refinitiv Benchmark Services (UK) Limited (“RBSL”), (8) Refinitiv Limited (“RL”) and (9) 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, WOFE, RBSL, RL, and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “Refinitiv” , “Beyond Ratings®”, “WMR™” , “FR™” 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 LSEG or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, WOFE, RBSL, RL or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator. Refinitiv Benchmark Services (UK) 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 LSEG, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical inaccuracy as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of LSEG 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 LSEG Products, or of results to be obtained from the use of LSEG products, including but not limited to indices, rates, data and analytics, or the fitness or suitability of the LSEG products for any particular purpose to which they might be put. The user of the information assumes the entire risk of any use it may make or permit to be made of the information.
No responsibility or liability can be accepted by any member of LSEG 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 inaccuracy (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 LSEG is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.
No member of LSEG 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 LSEG 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. Indices and rates cannot be invested in directly. Inclusion of an asset in an index or rate 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 or rate 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 and/or rate 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 or rate 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 or rate was officially launched. However, back-tested data may reflect the application of the index or rate methodology with the benefit of hindsight, and the historic calculations of an index or rate may change from month to month based on revisions to the underlying economic data used in the calculation of the index or rate.
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 LSEG 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 LSEG. Use and distribution of LSEG data requires a licence from LSEG and/or its licensors.
