Non-Tech
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Russell 2000 Rebalancing and Internet Stocks
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| An SI Board Since June 1999 |
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The purpose of this thread is to make an attempt at an early identification of Internet companies currently in the Russell 2000 that will be cut from the index later this month.
The Frank Russell Company annually rebalances the Russell family of indexes. Each year on May 31, Russell ranks the 3,000 largest US stocks by market capitalization.
On June 11, 1999 (after 6:00 p.m. PDT), Russell will publish the preliminary additions and deletions for the Russell 3000 Index. A revised preliminary list of additions and deletions will be available on June 18, 1999 (after 6:00 p.m. PDT), and again on June 25 (after 6:00 p.m. PDT).
The final list of additions and deletions will be available on July 7, 1999. The small-cap Russell 2000 consists of the 2000 smallest companies in the Russell 3000.
Approximately $12 billion worth of institutional assets is currently indexed to the Russell 2000. One analysis estimates that the internet weighting in the index will fall from 9.3% to 3.2% in this years rebalancing. This will result in the automatic selling of $720 million Internet stocks in indexed funds. In addition (and with a much larger impact) portfolio managers that try to maintain sector weightings so as to mimic the performance of the indexes will also become net sellers. As Internets are dropped from the index institutional investors will be forced to make decisions to include the Internets based on valuation instead of sector weighting.
The resulting selling will further pressure the stock price of the poorest performers.
Which Internet companies are likely to be dropped? Can anyone provide a method of screening for likely candidates?
For information on the Russell indexes see:
russell.com
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