The Russell 3000 Index is a benchmark of 3,000 publicly traded US companies, covering 98% of the total. The Russell 3000E Index includes 4,000 companies, with the 3000 stocks plus 1,000 smaller ones. The index is used for benchmarking and by mutual funds.
The Russell 3000 Index is an index of the stock prices of 3,000 publicly traded US companies. This covers about 98% of the total in the United States. The combination of the scale and credibility of the index means that it is used as a benchmark by both analysts and companies that offer financial products such as mutual funds.
The naming system used by Russell Investments has the potential to cause confusion. The Russell 3000 Index is a subset of the Russell 3000E Index, which is the largest index the company operates. The latter actually includes 4,000 companies; the E stands for Extended, and the index is made up of the 3,000 Russell 3000 stocks plus 1,000 smaller stocks.
The Russell 3000E Index covers all stocks traded in the United States, with a few exceptions. These include those that are trading for less than $1 United States Dollars (USD), some that are traded over the counter, meaning they are not traded on exchanges, and foreign stocks. Of all the stocks covered in the Russell 3000E, the largest 3,000 are selected for the Russell 3000 Index. This is based on market capitalization, which is the share price multiplied by the number of tradable shares. In effect, it is the value that the market places on the company as a whole.
The list of stocks included in the various Russell indices is calculated once a year. It is based on market capitalization annually as of May 31, with the new listing announced in mid-June and taking effect on the last Friday of June. If a company merges or its stocks are delisted, they will not automatically be removed from the Russell 3000. These stocks will generally be the first candidates for delisting when new publicly traded companies are added, which happens once a quarter .
There are two main ways the Russell 3000 Index is used. The first is as a benchmark. It can be used simply to track how well stock markets have performed as a whole, or to track the relative performance of particular industry sectors. It can also be used as a benchmark to assess a fund manager’s performance; Someone below the index figure is unlikely to win much business!
The other main use of the Russell 3000 Index is for mutual funds and exchange-traded funds. These are designed to buy and sell shares in proportions that match the constitution of the index. In turn, this should mean that the funds match the performance of the market as a whole.
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