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To: Jorj X Mckie who wrote (59013)	6/28/2002 7:40:53 PM
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UPDATE 1-Russell 2000 beats S&P ahead of Friday reshuffle By Thi Nguyen NEW YORK, June 28 (Reuters) - The Russell 2000 <.RUT>, the dominant benchmark index for U.S. small company stocks, beat the broader market on Friday ahead of the annual reshuffle of the Russell indexes after the close of the market. But the index is expected to give back its gains later, according to a top small-cap analyst. "(Typically) the Russell small-cap index beats (the Standard & Poor's 500 <.SPX>> on the day of the rebalancing and then gives back the gains the next day," said Steven DeSanctis, small-cap strategist at Prudential Securities. The Russell 2000 was up 0.86 percent to 462.65 on Friday, beating the Standard & Poor's 500 benchmark index -- which was down 0.12 percent -- by almost 1 percentage point. Investment firm Frank Russell Co. rebalances its 21 indexes every year at the end of June. The firm provides its clients with the index member lists after the close of the market on Friday and will publish them on July 9. Fewer investors have been playing the rebalancing game this year because "there are enough other things going on that are occupying people's minds (like accounting issues)," said Joe Stocke, portfolio manager at StoneRidge Investment Partners which oversees some $800 million in assets. Last year, the index outperformed the S&P 500 by 2.1 percentage points on the day of the rebalancing and gave back the gains over the next two days, said DeSanctis. Typically, stocks added to the Russell 2000 rise, while those deleted fall as index managers buy or add the shares to mimic the index. About $25 billion in investment assets currently mimic the index through index-tracking mutual funds, according to the Frank Russell Co. More assets are held by managers who use the index as a benchmark for their performance. MELLOW YEAR FOR RESHUFFLE On average, the brand new stocks added to the Russell 2000 have outperformed the index by some 7.2 percentage points since Frank Russell released its preliminary rebalancing lists June 7. The deleted list has lagged by 9.4 percentage points, said DeSanctis. June has been in line with what happened in the previous years, but "the previous month was much more mellow than last year because less people were interested in playing the rebalancing," DeSanctis said. Last year was exceptional because small-cap managers, after being beaten by the index in the first few months of the year, had more incentives to play the rebalancing. Still, investors should watch new added and deleted names in the Russell 2000 in the coming months. Following the rebalance, the new adds typically start to lag after much speculation and deleted names sometimes surge after being heavily sold-off, said DeSanctis. The Russell 2000 has underperformed the S&P 600 <.SML>, another small cap index, over the two months following Russell's reshuffle each year since 1994, due to the lagging performance in its new adds, said Benjamin Bowler, an analyst at Merrill Lynch Global Fundamental Equity Research. FALLEN TECH STOCKS CROWD 2000 Frank Russell ranks the stocks from 1 to 3,000 based on their market capitalization. The largest 1,000 are the Russell 1000 large-cap index and the next 2,000 are in the Russell 2000 small-cap index. "The short answer is this year's rebalance basically follows the same trend as last year, but not as big of a magnitude," said Brad Lawson, a senior research analyst at the Frank Russell Co. "You have tech weight in the Russell 2000 increases and in the Russell 1000 decreases. It also rebalances its growth and value indexes, using stocks' price-to-book ratios and five-year earnings growth rate estimates by Wall Street analysts to determine whether a stock is a growth or a value stock, according to Lawson. "Tech is creeping over into the value land while many healthcare, financial and consumer stocks became more growth-y these days," said Lawson. "The difference is that in the past two years there were a lot of external changes with a lot of IPOs (initial public offerings) coming in. But now with the lousy IPO market, this year's rebalance is more of reshuffling than before." The Russell 3000 this year have added some 400 new members, much lower than the average of some 500 new stocks in previous years, said Lawson. With index funds becoming more popular in recent years, the Russell indexes currently have some $215 billion indexed to them, up from $176 billion a year ago. TABLE 1 - Top brand new members in the Russell 2000 at rebalancing, in terms of weighting. Symbol Companies Sector CCRN Cross Country Inc. Business Services STGS Stage Stores Consumer Services KV KV Pharmaceutical Healthcare JOYG Joy Global Inc. Capital Spending SURW Surewest Communications Utilities CQB Chiquita Brands Consumer Staples GHVI Genesis Health Ventures Health care FB FBR Asset Investment REITS ULAB Unilab Corp Health Care CKR CKE Restaurants Consumer Services GNSS Genesis Microchip Technology KIND Kindred Healthcare Inc. Healthcare UDI United Defense Industries Technology UCBI United Community Banks Financial Services Source: Frank Russell Co., Prudential Securities. TABLE 2 - Top deleted names from the Russell 2000, in terms of weighting. Symbol Companies Sector CMRC Commerce One Technology INSP Infospace Inc Technology OSCA Osca Inc Energy NMSS NMS Communications Technology AVN Avanir Pharmaceuticals Healthcare MRVC MRV Communications Technology MXWL Maxwell Technologies Technology SCLN Sciclone Pharmaceuticals Healthcare ACK Armstrong Holdings Basic Industry TXCC TRANSWITCH CORP Technology SYMM SYMMETRICOM INC Technology SPTN Spartan Stores Consumer Services ENMD Entremed Inc Healthcare STEL STELLENT INC Technology Source: Frank Russell Co.; Prudential Securities. ((Thi Nguyen; Wall Street Desk; 646-223-6153)) REUTERS * end of story *