Russell Reconstitution And Derivatives

February 12, 2004


Russell 2000

Passive funds tracking the Russell 2000 index receive the largest amount of attention in terms of words written and analysis done. Since the Russell 2000 makes up only 8% of the Russell 3000, the amount of assets in Russell 2000 index funds is larger in proportion to their capitalization than the combined assets of the Russell 1000 and Russell 1000 Value and Growth index funds. A fair amount of crossing occurs between the Russell 2000 funds and the funds benchmarked to the Russell 1000 family. If the amount of assets in Russell 1000 index funds grows relative to the amount in Russell 2000 funds, the issue of turnover in the Russell 2000 will decline. However, at this point, a significant amount of trading in the Russell 2000 continues to be conducted to reflect the changes in the small-cap market and, therefore, the index.

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