Later this month FTSE Russell will shake up its US stock market indices to reflect the winners and losers over the past year. The most notable change will be a humiliating migration for Facebook’s parent Meta.
Beyond reconstituting its flagship indices — the Russell 1000 (big stocks), the Russell 2000 (small stocks) and the Russell 3000 (both categories smashed together, to represent the entire US stock market) — the benchmark provider will also rejig its factor indices.
These are financial indices that tilt towards certain investment styles or stock market characteristics. For example, the Russell 1000 Growth Index focuses on faster-growing companies, which these days are often found in the technology sector.
This is where Facebook/Meta has been for virtually all its history as a public company. At pixel time Meta accounts for about 2.4 per cent of the Russell 1000 Growth Index and has no weighting at all in the Russell 1000 Value Index.
However, its deteriorating performance and stock market puke — it is down nearly 42 per cent this year — means that change is afoot.
Jefferies notes that FTSE Russell’s latest updates on the two-month process indicate that Meta will probably account for 1.8 per cent of the value index once the reconstitution goes into effect at the end of trading on June 24, and just 0.49 per cent of the growth index (weightings can be rejigged to reflect market movements up until that day however).
This is going to have a big impact on the sectoral make-up of the value and growth indices:
The Russell index reconstitution is a pretty interesting phenomenon, and with about $12tn of assets benchmarked against or in funds that track Russell gauges, the day it goes into effect is typically one of the highest volume trading days of the year. You can read more about how it functions here.
However, for FT Alphaville the most delicious aspect is Meta’s imminent demise as a growth stock and resurrection as a value stock.
Although value stocks are back in favour again lately — after a run so bad and so long that people had to delve into the history books for comparisons — and growth is getting clobbered, it still underscores a dramatic change in trajectory for the lizard king’s empire.