Construction and methodology

Russell Index Calculation

ftserussell.com

December 2019

Contents
Introduction....................................................................................3
Price and total returns...................................................................4
Currency converted returns .........................................................6
Net returns .....................................................................................7
Hedged returns ..............................................................................8

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20192

Introduction
This document describes FTSE Russell’s general index calculation methodologyfor the Russell US Indexes.
An index value is, by design, a tool for measuring the return from holding sharesof the constituent stocks. The return that an index value is designed to measureis the time-weighted return of the holdings. In time-weighted return methodology,
any change in holdings (share changes due to corporate actions orreconstitution, for example) represents an implied cash flow into or out of theindex portfolio. Time-weighted return methodology removes the effect of cash
flows on the measured return. Accordingly, an index value does not change due
to share changes (implied cash flows); an index value only changes as a result ofprice gains or income generated by the holdings.
Indexes are calculated in “local currency” with price, total and net returns. Index
levels are also available in several currencies, e.g., USD, AUD, CAD, CHF, EUR,GBP, JPY.
Indexes are calculated five days a week, from Monday to Friday.
Construction and methodology for the Russell US Indexes can be accessed on
www.ftserussell.com.

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20193

Section 1

Price and total returns
Index holdings are valued on a daily basis using closing prices. The sharepositions to be held on day t, valued at the closing prices from day t–1 (the night
before day t), gives the beginning market value BMVt on day t:
BMVt = ∑ Qit Pit-1
iwhereBMVt =beginning market value on day t
Qit =number of shares of security i held on day t
Pit-1 =closing price of security i on day t-1
After the close on day t, the ending market value EMVt of the index holdings iscalculated from:
EMVt = ∑ Qit PitiwhereEMVt =ending market value on day t
Pit =closing price of security i on day t
The price return of the index for day t is calculated, and the corresponding pricereturn index value IVt at the end of the day is updated by:price return =IVt =IVt-1

EMVt-1
BMVt

EMVt, for a price return index
BMVt

whereIVt =price return index value on day t
IVt-1 =price return index value on day t-1

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20194For a total return index, dividend amounts are handled on the ex-dates. Special
cash dividends, which are non-recurring dividends outside of the normal
dividends paid by the company, are treated differently from regular cash
dividends. Regular cash dividends are added to ending market values, while
special cash dividends are subtracted from beginning market values. The total
return of the index for day t is calculated, and the corresponding total return index
value at the end of the day is updated by:total return =IVt =IVt-1EMVt +DIVt-1
BMVt -SDIVt

EMVt +DIVt, for a total return index
BMVt -SDIVt

whereDIVt = ∑ Qit-1 DPSitiSDIVt = ∑ Qit-1 SDPSiti

Qit-1 =number of shares of security i held on day t-1
DPSit =regular dividend per share of security i with ex-date t
SDPSit =special dividend per share of security i with ex-date t
IVt = total return index value on day t
IVt-1 = total return index value on day t-1
Also after the close, the shares of securities are adjusted (for corporate actionsor reconstitution, for example). The new share positions to be held on day t+1,valued at the closing prices from day t (the night before day t+1), gives thebeginning market value BMVt+1 for day t+1:
Qit+1 =Qit +∆Qit
BMVt+1 = ∑ Qit+1 Pit
iwhereQit+1 =number of shares of security i held on day t+1∆Qit =change in number of shares of security i on day t
BMVt+1 =beginning market value on day t+1

The calculations repeat the next day.

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20195Section 2Currency converted returns
Russell index values are calculated in local currencies and then converted to thecurrencies below:

AUD

Australian Dollar

CAD

Canadian Dollar

CHF

Swiss Franc

EUREuro

GBP

Pound Sterling

JPY

Japanese Yen

SGDSingapore Dollar

ZAR

South African Rand

USD

United States Dollar

The following formula is used to convert country index returns from their local
returns to the various currencies.
Daily Index return in foreign currency:
IndexRetur n_FC i (n) = (1 + IndexRetur n_LOC(n)) * (S(i) (n)/S(i) (n – 1)) – 1Where
IndexReturn_FCi (n) = Index return in the ith foreign currency at day n,n=0, 1, 2, …
IndexReturn_LOC (n) = Index return in its local currency at day n, n = 0,1, 2, …
S(i) (n) = Spot exchange rate for the ith foreign currency per unit of theindex’s local currency at day n, n = 0, 1, 2, …

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20196

Section 3

Net returns
Russell indexes are calculated net of taxes. Net returns are calculated to provide
applicable returns to foreign investors who are subject to a foreign tax
withholding on dividends received.
Security level Net Return Relative calculation:

NetReturn(n) = ∑(AEMV(n) + (Cashdividend(n)* (1 - CountryTaxRate(n)))/ABMV(n)Where:
SecurityNetReturn(n) = Security-level net return at day n, n = 0, 1, 2, …
AEMV(n) = Adjusted Ending market value at day n. AEMV equals theindex float-adjusted market value based on the primary exchange closing
prices for the day.
ABMV(n) = Adjusted Beginning market value at day n. ABMV reflects theindex float-adjusted market value based on the previous day's close
prices adjusted for any corporate actions.
Note: Special cash dividends are not included in cash dividend calculations as
they are already accounted for within the ABMV calculation. Special cash
dividends are those non-recurring dividends outside of the normal dividends paidby the company.

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20197

Section 4

Hedged returns
Domestic investors may minimize the currency risk of holding stocks traded inforeign currencies by entering into a set of forward contracts. These contracts
offset investors’ currency exposure and allow investors to lock exchange rates inadvance, so that their foreign assets are immune to the underlying foreignexchange rate volatility. Hedged returns are also calculated for the U.S. index
series from a non-US investor’s viewpoint.
Hedged return calculation methodology can be found at the following link:

http://www.ftse.com/products/downloads/Currency_Hedging_Ground_Rul
es.pdf.

FTSE Russell | Russell Index Calculation Methodology, v1.1, December 20198

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