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FTSE Russell’s final reconstitution of the benchmark indexes on Friday will be affected by the rapid advance in AI equities over the past year.
After the closing bell on Friday, FTSE Russell will finish its multi-step index renewal process with the Russell Reconstitution, one of the busiest trading days of the year.
Russell 1000 for large-cap stocks and Russell 2000 for small-cap stocks is updated. The Russell 1000 growth and Russell 2000 value benchmarks.
The rapid rise in AI-friendly companies like Nvidia and Super Micro Computer is expected to impact Russell’s growth and value indexes this year after last year’s reconstitution.
Despite a recent downturn, Nvidia shares are up 180% and Super Micro 230% from a year ago. Microsoft is up 31% and Meta Platforms is up 75%.
Ramzan Karamali, welcome to Inside ETFs.
Since growth outperformed, Jefferies equity strategist Steven DeSanctis in New York predicts fewer than 400 Russell 1000 growth stocks. The top five equities would weigh about 44%.
“All the top names keep getting a chunkier and chunkier proportion,” he said.
DeSanctis anticipates tech to fall 4.6% and health care to climb 3.4% in the Russell 2000.
Menomonee Falls, Wisconsin-based Allspring Global Investments senior portfolio manager Bryant VanCronkhite anticipates technology and communication services to make up two-thirds of the Russell 1000 growth index.
VanCronkhite stated 45 stocks are leaving the growth index, dropping it to 390 from 870 in equivalent value.
“It becomes much more challenging to beat benchmarks when you have fewer tools in the toolbox,” he said. “If you have a smaller number of names, you may have fewer options to construct the ideal portfolio.”
Other index providers change their indexes to maintain a specific number of components, but FTSE Russell only redesignates annually, save for quarterly IPOs.
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