Skip to main content

You are here

Blog Listing Page

Defensive or dynamic among Russell 1000 top ten

By: Catherine Yoshimoto, Director, Product Management

The annual reconstitution of the Russell US Indexes, when eligible companies are re-ranked and assigned to their respective indexes, was completed on June 25, 2018. A key component of the reconstitution is the recalculation of style and stability probabilities for each company in the index. This year’s recalculations shed light on how our methodology reflects the changing fundamentals of the largest Russell 1000® Index constituents.

The term “probability” is used to indicate the degree of certainty that a stock is growth, value, defensive or dynamic, based on a number of fundamental metrics.[1] This method allows stocks to be represented as having characteristics that fit more than one style or stability category, while preserving the additive nature of our indexes.

The chart below is a representation of the combined style and stability probabilities of the 10 largest companies in the Russell 1000 Index after the 2018 recon recalculation. The companies are sorted from largest to smallest weight.

In a year when technology company growth captured news headlines, it's not surprising that Apple remained 100% Growth in the Russell US Style Indexes in 2018. Given the relatively high volatility of its stock price over the previous 1- and 5-year periods, it's also not surprising that Apple moved to fully Dynamic (from 40% Defensive) in the Russell US Stability Indexes® despite relatively defensive return on assets and earnings variability metrics. Amazon.com and Facebook were also 100% Growth-Dynamic as of the 2018 Russell reconstitution.

However, we can see some variation in style and stability probabilities among the largest 10 companies in the Russell 1000 Index, even within the technology sector. For example, while Microsoft and Alphabet are primarily Growth, their 2018 probabilities were calculated as more Defensive than Dynamic. Microsoft is 100% Defensive due to defensive return on assets and relatively low 1-year stock volatility. Alphabet is 90% Defensive due to relatively defensive return on assets, earnings variability and leverage scores.

In terms of Value companies, Exxon is 100% Value-Defensive and Bank of America is 100% Value-Dynamic, while JP Morgan Chase & Company is 100% Value but 50% Defensive and 50% Dynamic. Exxon is 100% Value due to book-to-price and 5-year sales per share growth and 100% Defensive due to the relatively low volatility of its stock price and low leverage. Bank of America and JP Morgan Chase & Company both have relatively high leverage, which is typical of banks and similar financial institutions.

With approximately $6.5 trillion in assets under management benchmarked to them, the Russell US Style Indexes continue to be a vital part of the index ecosystem, and annual reconstitution ensures that the series continues to accurately reflect the market. The Russell US Stability Indexes add another perspective to US companies that may be an interesting addition with the return of higher volatility to the markets.

To learn more about our methodology and to read the latest research, visit the Russell US Index Reconstitution page.

 

---------------

[1] For additional details on the index construction methodology, refer to: Construction and Methodology

 

© 2018 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE GDCM”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE GDCM, MTS Next Limited, Mergent, FTSE FI and YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “WorldBIG®”, “USBIG®”, “EuroBIG®”, “AusBIG®”, “The Yield Book®”,  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE GDCM, Mergent,  FTSE FI or YB. “TMX®” is a registered trademark of TSX Inc. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Products or the fitness or suitability of the FTSE Russell Products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Products is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this communication or links to this communication or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this communication or accessible through FTSE Russell Products, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE GDCM, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.

Blog Listing Page