FAQ: What the Russell index reconstitution means for investors

The Russell index reconstitution becomes effective after the market close on June 26. T. Rowe Price analysis is based on preliminary data but is subject to change pending Russell’s final publication.

Q: What is the Russell index reconstitution?

A: FTSE Russell’s family of indexes is designed to reflect the broader U.S. equity market and to represent different market capitalizations. For example:

• Russell 1000 Index: The largest 1,000 U.S. stocks by market cap.
  • Russell Top 200 Index: The largest 200 U.S. stocks by market cap.
  • Russell Midcap Index: Approximately 800 of the next largest U.S. stocks by market cap.
• Russell 2000 Index: The next 2,000 largest U.S. stocks.
• Russell 3000 Index (all cap): A broad index of the 3,000 largest U.S. stocks by market cap that is designed to cover about 98% of the investable universe.

Within each market capitalization segment, FTSE Russell offers subindexes that capture different investing styles—most prominently, growth and value.

FTSE Russell reshuffles the membership of its equity indexes on a regular schedule to ensure that they continue to represent the U.S. equity market as it evolves.

The reconstitution process redistributes companies by market capitalization and style:

• Companies might move up or down into a new market capitalization segment.
• Changes in a company's book-to-price ratio (valuation), forecast medium-term earnings growth (two-year), and historical sales per share growth (five-year) might lead to changes in its investment style categorization.

Side effects of these adjustments to how individual companies are represented in an index can include changes in sector, industry, and factor¹ exposures.

The next FTSE Russell index reconstitution will take place after the market closes on June 26, 2026.

Q: Why does the FTSE Russell index reconstitution matter?

A: FTSE Russell equity indexes serve as performance benchmarks for many actively managed investment strategies. Some passively managed strategies also seek to replicate the performance of these indexes.

Approximately USD 12.2 trillion in assets were benchmarked to Russell U.S. indexes as of June 30, 2025.² Accordingly, index reconstitutions can have important implications for portfolio positioning and passive fund flows.

Q: What makes the June 2026 FTSE Russell U.S. index reconstitution particularly important for investors?

A: The upcoming rebalancing, while regularly scheduled, is far from routine.

This reshuffling is expected to be a high-turnover event. Quantitative analysis from the T. Rowe Price Integrated Equity team suggests that the quantity of benchmark weight changes should be especially pronounced for the large-cap Russell 1000 Value and Growth Indexes, the Russell Midcap Growth Index, and the small-cap Russell 2000 Growth Index.

More important: Significant exposure shifts in this reconstitution cycle point to a meaningful reshaping of each FTSE Russell U.S. growth and value index’s risk profile across large-, mid-, and small-cap segments.

Q: How will the June 2026 reconstitution affect exposure to the AI theme across Russell’s U.S. equity indexes and what are some of the knock-on effects?

A: The reconstitution is expected to drive significant shifts in index weightings to companies exposed to the AI infrastructure boom and a major reshaping of index risk profiles.

Implications for AI thematic exposure:

• Our analysis suggests that the AI trade will become increasingly concentrated in Russell’s U.S. large- and mid-cap growth indexes, as companies that have benefited from the spending on supporting infrastructure are migrating into these benchmarks. Names specializing in memory, data storage, optical connectivity, and distributed power generation are among the companies making the jump.
• U.S. value and small-cap indexes, on the other hand, are expected to lose exposure to companies benefiting from the AI spending boom.

Implications for industry exposures:

• The Russell 1000 Growth Index’s exposure to the semiconductor industry is likely to increase significantly.
• The Russell 1000 Value Index’s weighting to software is expected to increase, as is its exposure to cyclical industries.

Implications for factor exposures:

• In our view, the Russell 1000 Growth Index and the Russell Midcap Growth Index are likely to gain significant weight in AI-levered stocks that historically have exhibited higher beta. Our quantitative analysts on the Investment Data Insights team also believe that exposure to the momentum factor is likely to increase.³
• Our quantitative analyses suggest the inverse is likely to occur in value and small-cap benchmarks, as the basis points from higher-beta AI stocks are redistributed into parts of the market that have tended to exhibit lower beta. The June 2026 reconstitution is also expected to reduce exposure to the momentum factor in Russell’s value and small-cap indexes.

Q: How is the June 2026 reconstitution expected to affect the Russell 1000 Growth and the Russell 1000 Value Indexes’ exposure to the mega-cap internet and technology companies?

A: The mega-cap internet and technology stocks are no longer exclusively growth stocks, continuing a development from last year, when Amazon.com, Meta Platforms, and Alphabet (Google’s parent company) joined the Russell 1000 Value Index.

During the June 2026 reconstitution, Apple, Amazon.com, and Microsoft are projected to see their weightings in the Russell 1000 Growth Index decrease somewhat. A significant portion of their market cap will now be classified as value, making those names among the largest weights in the reconstituted value benchmark. Alphabet, however, is expected to exit the value benchmark.

Implications for index concentration:

• The Russell 1000 Growth Index’s exposure to the Mag 7 (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) is projected to decline significantly. Managers whose strategies are benchmarked to the index should have increased flexibility for active bets at the top of their portfolios.
• The Russell 1000 Value Index, on the other hand, will become more concentrated at the top and feature a larger growth-within-value component.

Implications for capital gains:

• The length of time that the mega-cap internet and tech companies have been held in many large-cap growth portfolios may increase the potential for realizing capital gains as managers seek to adjust position sizing and portfolios’ relative risk profiles in a responsible manner.
• The true implications will depend on specific portfolio managers’ actions and the cost basis associated with the shares to be sold.

Q: How is the schedule for Russell U.S. equity index reconstitution changing and what are some of the potential consequences for portfolio managers?

A: In 2026, FTSE Russell is transitioning from an annual index reconstitution in June to a semiannual schedule that adds a rebalancing in December. This second reconstitution will address market cap changes primarily. In December, recalculation of companies’ investment style probabilities will be restricted to any new index additions or current index members migrating to a new market cap universe (the Russell 1000 and Russell 2000, and the smallest 1,000 in Russell Microcap).

The shift aims to improve the representativeness of FTSE Russell’s U.S. equity indexes during periods of heightened volatility or return dispersion. Adding a second reconstitution each year should reduce the length of time that companies whose market capitalizations grow or shrink significantly beyond an index’s thresholds remain in that benchmark.

For small- and mid-cap managers, this policy change creates a challenge and makes active risk management all the more important, especially for stocks that appreciate rapidly on narrative as opposed to their underlying business fundamentals. If they continue to move higher, the highest market cap stocks, which are typically the largest positions in the index, will exit the benchmark in six months (12 months previously). If a portfolio does not own them because of a negative or even neutral view, it has only six months for the market to reflect the manager’s less sanguine outlook for the company. If the pullback happens after the stock leaves the index, it does not help the strategy’s performance.

Q: How are T. Rowe Price portfolio managers responding to the historic risk reset that the June 2026 reconstitution could bring for the Russell U.S. equity indexes?

A: Overall, the reconstitution changes the risk profile of Russell’s U.S. equity indexes, disrupting active equity positioning and exposures embedded in existing portfolios.

Our investment professionals have been monitoring these developments closely and weighing the implications. Considerations include how much turnover is appropriate to maintain intended active bets and how much temporary active risk is palatable. For small-cap strategies, liquidity constraints may also factor into the approach.

The broader lesson from the June 2026 Russell reconstitution is that benchmark construction is becoming more dynamic in response to increasingly rapid market-cap changes.

For active managers, benchmark awareness is becoming less about minimizing tracking error and more about understanding how benchmark risk itself is evolving.

The June 2026 reconstitution represents a historic risk reset. We may be entering an era in which benchmark composition adjusts more rapidly, factor migrations occur more frequently, and disciplined risk management becomes an even more important source of long-term excess return.

Ultimately, how individual portfolio managers at T. Rowe Price choose to adjust position sizes and control these risks will vary. The one overarching principle is putting clients first. At T. Rowe Price, we have one purpose: to help our clients create more secure financial futures.