London index reshuffle to give healthcare stocks a bigger profile

The Russell rebalance becomes final on the fourth Friday every June, after markets close. Stocks are added or deleted from Russell’s family of indexes, including the Russell 1000 large cap and Russell 2000 small cap, prompting fund managers to adjust portfolios to reflect new weightings and components.

Russell bases the placesment in the indexes on a number of factors, including market capitalization, voting rights requirements and country of domicile.

Telegraphing the reconstitution can create additional buying and selling stocks. Some investors may use the additional liquidity to take advantage of any resulting price dislocations, or to adjust the holdings in their portfolios, especially in smaller companies that have much lower liquidity.

The resulting surge in trading volume crests right before the market close. FTSE Russell says more than $15 trillion is currently benchmarked to its indexes globally and about $9 trillion to its U.S. indexes.

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