By the second week in July, the Russell 2000 index received the final touches in its annual makeover.
The small-stock benchmark gained a variety of new issues and, as expected, saw many highflying Internet stocks graduate to the Russell 1000 large-capitalization index. The Russell indexes are adjusted once a year on June 30, partly to push out of the Russell 2000 those stocks that have gotten too big to be "small."
Any stock with a market capitalization below $1.5 billion is generally considered small-cap.
Among the 124 issues that moved up to the Russell 1000 were "Net" stocks like brokerage firm E*Trade Group, Net investment group CMGI, Internet advertising-software firm DoubleClick and search engine Lycos.
Replacing them in the Russell 2000 are several new Web-related stocks, including online bookseller barnesandnoble.com, Internet community theglobe.com and financial news site TheStreet.com. Indeed, the new Russell 2000 includes 145 recently completed initial public offerings. Meanwhile, 250 stocks fell out of the index altogether because they became too small, according to data from Goldman Sachs Group.
The index's largest sectors, by weight, are financial services, at 23%, and consumer discretionary and consumer services stocks, at about 18.7%.
Technology stocks, the third-largest group, now make up about 15% of the index, down from around 16%, even though the number of them in the index increased by 60 companies. That is because stocks from lots of unsexy sectors also joined the Russell 2000. Some, like energy company Pennzoil-Quaker State and bookseller Borders Group, fell into the small cap index from its large-cap counterpart. Goldman's data show 100 such stocks dropped down from the Russell 1000.
The largest Russell 2000 stock in the reshuffled index is American Management Systems, a business and information-technology consulting firm, with a market value at inclusion of about $1.3 billion. The market value of the index's smallest stock, Towne Services, which processes sales and payment information for small businesses, was about $171 million. Mutual-fund managers whose performance is compared with the Russell 2000, but who have a rule against buying large stocks, welcome the changes. They suffered this year when the Russell 2000's large Internet components, which those managers couldn't buy, began fueling the index's performance.