What Is The Russell 3000 Index? – Fintech Zoom Advisor
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The Russell 3000 stock market index tracks the shares of the largest 3,000 publicly traded companies in the United States. Managed by the UK.-based FTSE Russell Group, the Russell 3000 also serves as the basis for its component Russell 1000 and Russell 2000 indexes.
What Is the Russell 3000 Index?
The Russell 3000 is a market index that measures the performance of the top 3,000 U.S. publicly traded companies as ranked by market capitalization, or the total dollar value of all of the outstanding shares. Due to its broad membership, the Russell 3000 accounts for approximately 98% of all U.S. stocks.
Though many people use the Russell 3000 as a benchmark in and of itself, it is also commonly broken into two subset indexes: the Russell 1000, which measures the 1,000 biggest large-cap U.S. companies, and the Russell 2000, which measures the remaining 2,000 mid-cap and small-cap companies.
The index’s composition is updated each year in May and June to ensure accuracy for both new and growing companies that may join the index or shrinking firms that may fall off of it. In addition, each quarter FTSE Russell Group, the entity managing the Russell family indexes, assesses all newly eligible companies that have had an initial public offering (IPO). This may lead to more than 3,000 companies being listed in the Russell 3000 at any given time.
Russell 3000 Companies
Since the Russell 3000 tracks the largest publicly traded companies in the U.S, its top 10 stocks by market capitalization are likely familiar to you.
As of April 30, 2021, the top Russell 3000 companies are:
Russell 3000 vs Other Market Indexes
The Russell 3000 offers a much broader coverage of the overall stock market compared to any other commonly used indexes. Here’s how it stacks up to the leaders:
- S&P 500: The S&P 500 index tracks the largest 500 publicly traded companies, offering exposure to 80% of U.S. stocks, compared to the Russell 3000’s 98%. Because of its smaller coverage, this means that index fund investors may be more exposed to large companies than they might want. As of April 30, 2021, the five largest companies in the index make up nearly 22% of the weighting of the S&P 500. The Russell 3000 is a little better, distributing similar weighting to 10 companies. If you’re investing in index funds that track either index, though, you may want to supplement with more targeted indexes to greater small company representation and more fully diversify your portfolio.
- The Dow Jones Industrial Average (DJIA): This index measures the performance of 30 large companies covering all sectors, except for transportation and utilities, which each get their own Dow Jones indexes. Because a committee makes recommendations for its component companies, rather than including the largest companies by default, the DJIA aims for a more hands-on approach to recreating the market as a whole.
- The Nasdaq Composite Index: The Nasdaq Composite measures stocks listed exclusively on the Nasdaq exchange, although some companies listed on multiple exchanges may be eligible if they were added before 2004. There are over 2,500 securities listed on the Nasdaq composite, which gives it a broader exposure than the S&P 500 or the DJIA. However, because this index is limited to stocks listed on the Nasdaq exchange, it is narrower than the Russell 3000, skewing more heavily toward technology. This may leave the index (and index fund investors) vulnerable to big swings in the sector.
How to Invest in the Russell 3000
While it is possible to individually purchase shares of each company represented in the Russell 3000 index, this process is too onerous to be realistic for the average investor. It is far simpler to purchase an exchange-traded fund (ETF) or an index fund that attempts to emulate the performance of the index and contains its thousands of component companies’ stocks.
FTSE Russell Group offers no ETFs or index funds for investors to purchase directly, though third-party fund companies do. Outside of those, some of the best total stock market index funds are based on the Russell 3000.
Should You Invest in the Russell 3000?
The Russell 3000 tracks the market as a whole but, due to its weighting, may overly represent large-cap companies. This may not be a bad thing when it comes to gauging the economy’s performance as these companies are large drivers of its movement. But it does mean that you may want to add in other indexes if you’re using it as part of a diversified index-fund-based investment strategy that ideally includes a more balanced mix of large-, mid- and small-cap companies.
With that in mind, you may choose to invest in the Russell 3000’s component Russell 1000 and Russell 2000 indexes separately. This allows you to gain exposure to (essentially) the whole universe of U.S. stocks, but you retain the ability to customize your ratio of large caps to small and mid caps better as by buying more shares of Russell 2000 funds.