View Full Version : Russell 2000 Rebalancing

06-03-2004, 06:21 PM
The preliminary list of stocks to be added and deleted from the Russell 2000 will be posted at russell.com on June 11, based on market cap as of May 31.

Stocks added to the index tend to outperform in the next year, and vice versa. (Of course, the stocks were added/deleted because their market cap had risen/fallen in the previous year, so this could just be another argument for buying stocks with high relative strength.)

Here's a few articles about this game:

"Those investors who play the "Russell Game" each year attempt to select some promising companies that will be added to the index and then buy them before the actual Russell additions are announced. By being in these stocks early, they hope to maximize any rise that accompanies a stock's addition to the Russell 2000 Index. In many years, gains in stocks being added to the Index have been considerable."

"Wall Street does churn out a fair amount of research dedicated to predicting index additions and deletions, most likely because research has demonstrated that stocks do experience a price pop when added to an index"

http://www.briefing.com/GeneralContent/Silver/Active/ArticlePopup/ArticlePopup.aspx?articleId=NS20040429131245AheadO fTheCurve&SiteName=Print
"some of the smaller cap stocks added to the Russell 2000 list sometimes show a pop in price of between 10% and 20%, simply because of the increased buying pressure from index mutual funds."

Just a thought. By the way, since WITS has gone from under $5 to over $13 (most days) share price, and the market cap is now about 300 million, I'm guessing that WITS will be on the list to be added, having narrowly missed last year. The threshold last year was about 120 million. It is not currently in the Russell 2000, according to the list available at russell.com, but is well above last years threshold. This may also explain some of the volatility in WITS lately, although it's really not that much more volatile than it's ever been.

regards ... stenz

06-03-2004, 07:31 PM
Just for the heck of it, I set up a screen at MSN MoneyCentral. I think it's cool that you can actually do some math in the criteria. I wanted to find stocks with a minimum market cap (r2k candidate) that got there by an increase in share price over the last year, and started below some market cap threshold (not on r2k already). Check it out, play with it, have fun.

Russell also has a requirement about the float, but I don't know what it is.

My first pass included a lot of stocks, so I added a few criteria of my own to pare the list down. When I ran it just now, it returned 49 stocks, including WITS, SNCI, and several others I recognized from my usual screen, and DECK and NUTR that either are or were $$$M_M$$$ picks.