How we built a better
US equity benchmark
40 years of the Russell US Indexes

May 2024

Contents
Introduction

301.		 Origins of the US stock market index

5

02. The rise of the index fund

6

03. Why Russell invented a 3000-stock index

804.	Segmenting the market by size

10

05. Style indexes helped assess manager skill

13

06. Why a naïve methodology can pay off

1507.		 What is Russell recon?

1908.		 Enhancing index design

21

Conclusion

23
2

40

In 2024 we celebrate
the 40th anniversary of theRussell US Indexes,
which offer a complete
representation of theinvestable US equity market.
The Russell US Indexes are the leading benchmarks for
institutional investors in US equities, with approximately $9 trillion
in associated assets under management.1

Russell US Indexes

1
Data as of December 31, 2022 as reported on April 1, 2023 by eVestment for active institutional funds, Morningstar for active retail mutual funds, insurance products, and ETFs, and passive assets directly collected by FTSE Russell. AUM includes
blended benchmarks and excludes futures and options. AUM data does not include active and passive assets not reported to a 3rd party source or FTSE Russell. For funds where the AUM was not reported as of December 31, 2022, the previous period
AUM was used as an estimate. No assurances are given by FTSE Russell as to the accuracy of the data.

3

The Russell US Indexes
succeeded from thestart because they
were comprehensive,
objective, predictable,
modular and reliable.

Since their launch in 1984, the Russell US
Indexes have become an essential andclosely followed part of the US financial
markets. The annual Russell index
reconstitution day (‘Russell recon day’ at theend of June) is now one of the most widelyanticipated events in the US equity trader’scalendar. It often generates the highest
daily trading volume of the year on US
stock exchanges.

they were comprehensive, objective,
predictable, modular and reliable. They
offered something existing benchmarks
did not.

Russell style indexes are another mainstayof the US equity market. They segment
the equity universe into styles – growthand value, defensive and dynamic –offering a systematic and intuitive way ofdifferentiating stocks’ behavior.

In the following pages, we delve into history
to explain why the Russell US Indexes
have become such indispensable tools for
those following, investing in or seeking tounderstand the world’s largest stock market.

Although design of the indexes has
been modernized to ensure they remain
representative and useful to investors,
these attributes are as accurate today as
they were in 1984.

As we discuss in this paper, the Russell US
Indexes succeeded from the start because
Russell US Indexes41

Origins of the US stock
market index
Demand for a better benchmark
The Russell US Indexes were invented in 1984 to serve a
particular need: Map the US stock market in its entirety, but
only with those equities that are truly accessible to professional
investors. Early stock market indexes did not meet theserequirements.

Dow Jones Industrial
The Dow Jones Industrial Average, created by journalist Charles Dow in 1896, included only
twelve ‘smokestack’ US firms at launch. (This was later increased to 30 industrial stocks).
Although it was a closely followed barometer of the US stock market, the Dow was of limited
use for investment purposes. It was calculated by means of an unusual price-weighted
methodology:
The higher a company’s share price in dollars, the higher its index weighting and the higherthat company’s impact on the index as a whole.
Changes to Dow Jones Industrial Average constituents were irregular, occurring on average
every two years. Also, they were impossible to predict. Index changes were decided by acommittee that included journalists from the Wall Street Journal.

S&P 500 Index
The S&P 500 Index, created in 1957, served professional investors better than the Dow. The
S&P 500 is broader and is capitalization-weighted, mirroring the way portfolio managers
look at and measure the market.
However, the S&P 500 doesn’t necessarily select the largest 500 US equities. And, likethe Dow Jones Industrial Average, the index’s constituent selection is at the discretion of acommittee. The S&P 500 Index’s focus on large-caps also means it excludes the small- andmicro-cap stocks that have often been the engine of US economic growth.
Also, it was not fully investable. Before 2005, S&P included all company shares in its
calculation of market capitalization. In other words, before that date the S&P 500 was not
adjusted for ‘free float’ (a Russell innovation).

Wilshire 5000 Index Series
At the other end of the scale in terms of index size and scope, the all-cap Wilshire 5000
index (with 5000 constituents) had too many illiquid stocks and was too broad for use inprofessional asset management.
So by the early 1980s there was an opportunity to create a new US equity index to address
the needs of institutional investors. And the rapidly rising popularity of index funds was
driving demand for a better US equity benchmark.
Russell US Indexes

5

2

The rise of the index fundIn the 1970s, a few investment pioneers decided it was time to stoptrying to beat the US stock market and instead to try and match its
return at the lowest cost possible.

Early attempts at equal weighting

One of those pioneers was Burton Malkiel, author of the 1973 book, A Random Walk Down Wall Street. In the book,
Malkiel said it was time to reduce unnecessary transaction costs when investing in US shares. He wrote:

The strategy soon ran into problems. Its choice of benchmark meant excessive trading costs. An equal-weighted
strategy requires constant rebalancing. In those days, NYSE trades carried relatively high fixed commissions.

There had been early attempts to track the stock market, rather than attempting to beat it. In 1971, William
Fouse and John McQuown of Wells Fargo bank set up a $6 million portfolio for the Samsonite pension fund.
The portfolio’s objective was to hold all the stocks listed on the New York Stock Exchange (NYSE) with equal
weightings.

A few years after launch, Wells Fargo ditched the Samsonite fund’s benchmark, replacing it by the capitalizationweighted S&P 500. This was an early lesson in index design: while remaining objective, a stock or bond index
must also meet the needs of its users.

"What we need is a no-load, minimum management-fee
mutual fund that simply buys the hundreds of stocks
making up the broad stock-market averages and does
no trading from security to security in an attempt to catch
the winners."
Malkiel didn’t call this an index fund, but in essence,that is what he was describing.

Russell US Indexes

From innovation to mainstream
If index-based investing was an innovation in 1971, it’s now part of the mainstream. The first index mutual funds
were created later in the 1970s, followed by index-tracking exchange-traded funds (ETFs) in the 1990s. Indexbased investment strategies have since risen to represent around half of the US mutual fund market.
According to the US Investment Company Institute, index mutual funds and index ETFs accounted for 46 percent
of assets in long-term US investment funds at the end of 2022 – more than double their market share of adecade earlier (see Figure 1).

6

Figure 1: The rise of the index fund

Percentage of total net assets, year-end
Actively managed mutual funds and ETFs
Index ETFs
Index mutual funds

2012$11.6 trillion

2022$23.7 trillion

total net assets

78%

12%

total net assets

54%

10%
22%

Russell US Indexes

25%

21%
46%

Source: 2023 Investment Company Factbook

7

3

Why Russell invented a 3000-stock index
Despite the growing popularity of indexing, the choice of index
to measure active investors’ performance, or to underlie a passive
portfolio, was still a matter of debate.
In the early 1980s, a leading US based pension fund consulting firm
decided it could do better than the existing index options.

By 1982, the consulting firm Frank Russell had been appointed by the three largest corporate pension funds in
the US – IBM, AT&T and General Motors – to advise on investment strategy. This role included working with thepension funds on asset allocation, the selection of active managers and the choice of benchmarks.
Kelly Haughton, a Frank Russell consultant and a former Wells Fargo employee, decided that the firm’s newest
client, General Motors, could do better than use the S&P 500 Index for performance measurement purposes. In
Haughton’s view, the index’s choice of members (by means of a committee) rendered its approach more akin to an
active strategy than to a truly objective representation of the market.
Initially, Haughton looked at the Wilshire 5000 as an alternative since that index purported to represent the whole
equity market. However, he found that the Wilshire 5000 included too many illiquid stocks, as well as several nonUS companies with listings on US exchanges.

Russell 3000® Index arrives
After consulting managers of index and active funds, Haughton found that most selected from a list of around
3000–3200 US stocks. And so the idea of a 3000-stock US equity index – which Haughton and his colleagues
called the Russell 3000 Index – was born.
The index was sub-divided into a 1000-stock, large-cap index (Russell 1000® Index) and a 2000-stock, small-cap
index (Russell 2000® Index, see figure 2).

8Figure 2: It's really this simple

1,000 + 2,000 = 3,000
Russell 1000 Index

Russell 2000 Index

Russell 3000 Index

The largest 1,000 stocks
by market cap, the index
comprehensively covers the large
cap opportunity set.

The next 2,000 largest stocks
by market cap, the index
comprehensively covers the small
cap opportunity set.

This broad cap index of the
top 3,000 US stocks by market
cap was designed to cover
approximately 98% of the US
equity investable universe.

The new index required lots of data to back it up:– documentation of all equity characteristics, including share counts, dividends and other corporate actions; plus
– five years of performance history (Russell US Indexes are calculated from the end of 1978).
This was a significant challenge, given the technological constraints of the early 1980s.
At this point, the indexes nearly failed to get off the ground. Haughton’s colleagues at Frank Russell complained that he
was monopolizing the company’s mainframe computer at a time when processing power was expensive and rationed.
Undeterred, Haughton and his colleagues took to using the mainframe at night and weekends, eventually completing
their searches. On January 1, 1984, they launched the Russell 1000, 2000 and 3000 indexes.

Russell US Indexes

Source: FTSE Russell

94

Segmenting the market by size
At launch, the Russell US Indexes addressed a key need by dividing
the investable US equity opportunity set into separate large-cap
and small-cap segments.
By the late 1970s and early 1980s, many asset managers werehighlighting the attractions of smaller companies, with somelaunching small-cap equity funds to capitalize on the potential
client demand.

Their investment thesis was that small-cap stocks were often less well-researched than large-caps, creating
greater stock-picking opportunities. The managers also argued that small companies (often recent start-ups)
could grow their earnings faster than established, more bureaucratic firms.
In 1992, academics Eugene Fama and Kenneth French formalized the idea of a small-cap return ‘premium’ intheir famous Journal of Finance paper, ‘The Cross-Section of Expected Stock Returns’. Fama later received theNobel prize for his research on financial markets.
Analyzing US stock prices from 1963–1990, Fama and French showed that two ‘factors’ – company size andvalue – had played a significant part in explaining equity returns, in addition to a third factor, overall market riskor ‘beta’.
The confluence of academic theory and investor practice helped create demand for a comprehensive small-cap
index to benchmark the returns of this important equity segment.

What is small cap?
But the Russell 2000 Index’s introduction begged a question: what is a small cap? Designers of the Russell US
Indexes answered it simply. They took all US stocks, removed ineligible securities, ranked the remaining equities
by their market capitalization and selected the top 3000 stocks to make the Russell 3000 Index (see figure 3).
The smallest 2000 firms in the Russell 3000 became the Russell 2000, which had no overlap with the large-cap
Russell 1000 Index. There’s merely a cut-off point, or ‘breakpoint’, between the two.
This process is still the way the indexes are recalculated and reconstituted each year.

Russell US Indexes

10Figure 3: How we build the Russell 1000 and 2000 indexes

1. Start

2. Remove

3. Rank & capture

4. Create

5. Divide

Start with all US equity
securities

Remove ineligible
securities

Rank and capture top
4,000 securities above$30M in market
capitalization

Create the Russell
3000 for US securities

Divide into the Russell
1000 and Russell 2000
for US large cap andsmall cap indexes

Russell 3000E™
Index

Russell 3000®
Index

Russell 1000®
Index~4,000 securities*

3,000 securities~7,000 securities

Russell US Indexes~5,000 securities

Russell 2000®
Index*Note: If there are fewer than 4,000 eligible companies above $30M in size, the R3000E will contain fewer than 4,000 companies.
Source: FTSE Russell

11Variation of index breakpoints

Figure 4: Historical breakpoint between large-cap (Russell 1000) and small-cap(Russell 2000) indexes

Figure 5: Movement of a hypothetical company (‘H’) from Russell 2000 to
Russell 1000 between 2009–2023

$2.0B
$1.2B
$1.7B
$2.2B
$2.0B
$2.6B
$3.1B
$3.4B
$2.9B
$3.4B
$3.7B
$3.6B
$3.0B

$1.8B
$2.0B
$2.5B

COMPANY

H

$8.5B

$1.2B

$4.2B

Russell 1000®
Russell 2000®

Russell 1000®
Russell 2000®

COMPANY

H

2009

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

$1B
2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

$332.3M$648.6M$425.7M$375.0M$456.9M$591.5M$671.8M$746.4M
$1.1B
$1.1B
$1.4B
$1.3B
$1.5B
$1.4B
$1.3B
$1.2B
$1.6B
1988

1987

1986

1985

$255.5M$280.1M$366.9M$373.9M
1984

$4.6B
$4.2B

This design feature means that a stock can move seamlessly from the small-cap Russell
2000 Index to the large-cap Russell 1000 Index without reliance on a fixed market
capitalization target to determine index inclusion (see figure 5).

$5.2B

Since the creation of the Russell US Indexes in 1984, the breakpoint between the Russell
1000 and Russell 2000 has varied dynamically to reflect the shifting valuations of US
stocks (see figure 4). At $5.2 billion, the 2021 breakpoint was over four times higher thanin June 2009 – the immediate aftermath of the global financial crisis. And it was over 20
times higher than the year the Russell US Indexes were launched: 1984.

2023

Breakpoint

Source: FTSE Russell. As of “rank day” each year.

Russell US Indexes

Source: FTSE Russell

125

Style indexes helped assess manager skill
The Russell US Indexes soon helped measure the equity market inanother way, too. As the consulting company to many leading US
pension funds, Frank Russell was often asked by its clients to analyze
how much of an active equity manager’s past performance had
been due to luck rather than skill.

It turned out that a simple segmentation of the US equity market into ‘growth’ stocks (those with a below-average book-to-price ratio) and‘value stocks’ (above-average book-to-price ratio) went a long way toward answering the question.
In the words of George Russell, chairman of Frank Russell during the 1980s and 1990s:“When we research managers, one of our fundamental questions is, ‘How much is luck and how much is skill?’ For example,
suppose a manager was able to beat the Russell 1000 Index by 500 basis points in a given year. . . . That’s a great result.
But then we would look more closely. What style does the manager use? If growth, then we’d look at the Russell 1000
Growth Index, because it’s a better benchmark. Now we see that the manager’s outperformance is ‘only’ 50 basis points.”

Russell US Indexes

Source: Success By Ten, George F. Russell Jr, published November 4, 2009.

13

Variables to determine style categories

Figure 6: Allocation of company shares to Russell value and growth indexes
SECURITY

Company C

VALUE
PROBABILITYGROWTHPROBABILITYNUMBER OF
SHARES

VALUE
INDEX

GROWTH
INDEX

0

1

1500

0

1500

Company B

0

1

2000

0

2000

Company D

0

1

50

0

50

Company A

0.05

0.95

500

25

475

Company G

0.35

0.65

1500

525

975

Company E

0.80

0.20

450

360

90

Company H

1

0

1200

1200

0

Company F

1

0

2000

2000

0

Source: FTSE Russell. For illustrative purposes only. Does not represent actual data.

This distinction between style categories is still widely used by Russell index clients. We enhanced the stylemethodology since the indexes’ launch in 1987: Instead of a single variable to separate growth and value stocks,
we now use three:– book-to-price ratio,– I/B/E/S two-year forecast earnings growth, and– historical 5-year sales-per-share growth.
We no longer allocate companies exclusively to either the growth or value category. When stock characteristics
don’t allow for an absolute style distinction, the Russell US Style Indexes allocate portions of a firm’s market
value to both growth and value categories (see figure 6).
For the Russell 1000 and Russell 2000, around 30 percent by market capitalization is split between thetwo styles. However, the style index market caps always sum to that of the parent index, ensuring nodouble-counting.

Two new styles emerge
In 2010 we extended the style index range by introducing two new categories: defensive and dynamic stocks.
Russell Defensive Indexes® measure the performance of companies that are less sensitive to economic cycles,
credit cycles and market volatility. Russell Dynamic Indexes® measure the performance of companies that haverelatively less stable business conditions and are more sensitive to those market cycles.
The Russell US Style Indexes now serve as the foundation for a whole ecosystem of investment funds:
as of December 2022, out of the $9.2 trillion benchmarked to the Russell Indexes overall, $6.3 trillion were
benchmarked to the Russell Style Indexes.

Russell US Indexes

14

6

Why a naïve methodology can pay off
The Russell US Equity Indexes were created to serve as benchmarks
for anyone following or investing in the US stock market. To achieve
this objective, they embedded four design principles.

Following the preparatory work on equity characteristics undertaken by Frank Russell in the early 1980s, theRussell indexes were the first to weight constituents by ‘free float’.

A ‘naïve’ construction approach

Free float adjustment is now a standard index technique. It means to remove restricted shares, shares that arenever traded, or shares otherwise not available for purchase from the total used to calculate each constituent’s
market capitalization and ultimately determine its weight.

Yield the return and risk an investor could obtain without any
extraordinary knowledge of the investment opportunity set.

Naïve construction

Simplicity
Constructed using a transparent methodthat can be replicated by users.
Representative weighting
Capitalization-weighted andfloat-adjusted.
Completeness
Russell US Indexes

Introducing free float

Include all the assets
available for investment.

A naïve approach to index construction means that, subject to meeting certain criteria, any company can join the
Russell US Indexes. The criteria include– US nationality– listed on an eligible US exchange– minimum 5% free float and voting rights– minimum share price of $1, and– minimum market capitalization of $30 million
A naïve construction methodology also means that index users are subject as little as possible to judgment
calls by the index firm. In practical terms, this means that the Russell 1000 Large-Cap Index has included (andincludes) several top-500 stocks that are not represented in the competing S&P 500 Index because of thelatter’s design rules (see figure 7).
15

Figure 7: Differences in holdings between the Russell 1000 and S&P 500 as ofJune 2023 Russell recon

Total market cap of index constituents

Examples of stocks within the cross-section:$4.2B

The S&P 500 does not necessarily include the largest 500 stocks in the US equity markets. Instead, itsconstituents are changed on an as-needed basis by a committee consisting of full-time professional members of
S&P Dow Jones Indexes’ staff.
And while the Russell 1000 adds eligible initial public offerings (IPOs) to the index quarterly, the S&P 500 has
no regularly scheduled IPO addition process apart from a rule stating that IPOs must trade for 12 months before
becoming eligible for index inclusion.

$2,684.78$41.1B

Unique differences compared to the S&P 500

Russell 1000 companies
not in the S&P 500

Total market cap

BLACKSTONE GROUP INC$102.77B

AIRBNB INC$76.51BUBER TECHNOLOGIES INC$62.53B

SOUTHERN COPPER CORP

$59.40B

PALO ALTO NETWORKS INC$55.21B

VMWARE INC-CLASS A$53.57B

LULULEMON ATHLETICA INC$48.37B

WORKDAY INC-CLASS A$48.21B

SNOWFLAKE INC$48.13B$159.5M

The S&P 500 also has a profitability requirement for index inclusion. A company must report positive earnings in
its most recent quarter and the sum of its earnings in the previous four quarters must be positive. The Russell US
Indexes do not have a profitability requirement.

Why index choice is important
The differences in index construction methodology have had a major practical impact in the past.
For example, Russell’s US equity indexes added fast-growing but not necessarily profitable tech stocks like
Microsoft, Amazon, Netflix, Alphabet and Google up to a decade before the S&P 500. For FTSE Russell, thesecompanies were eligible for inclusion in the Russell US Indexes as soon as they met the index rules. But inclusionin the S&P 500 depended on the approval of the S&P index committee.
In the case of Microsoft, Amazon, Netflix and Tesla, stock prices increased between 1,900–17,000 percent fromthe point at which they entered the Russell 1000 or the Russell 2000 (if they joined the small-cap index first andwere later promoted to the Russell 1000) and the time they joined the S&P 500 (see figure 8).

Included in Russell 100 and S&P 500
Not covered in S&P 500

Source: FTSE Russell. The market capitalization breakpoints, constituents and total market cap above are for the Russell 3000 Index as of reconstitution rank day in April. The market
capitalization breakpoints for the Russell US Indexes are based on new additions as of reconstitution. The market capitalization ranges used above are absolute breakpoints for new members
and do not include capitalization banding. Capitalization banding involves the implementation of a ±2.5% band around certain breakpoints. For further information, please refer to the Russell
US indexes construction and methodology document or contact FTSE Russell Client Service.

Russell US Indexes

16Figure 8: Differences in performance from timing of index additions – Russell 1000 vs S&P 500

Company

IPO month

Added to Russell 3000 (A)Added to S&P 500(B*)% Cumulative
Total Return of theStockfrom A to B*

Russell 1000
Cumulative Excess
Return over S&P
500 from A to B*

Russell 3000
Cumulative Excess
Return over S&P
1500 from A to B*

Apple

Dec 1980

Mar 1981

Nov 1982

30%

-0.7%

N/A*

Microsoft

Mar 1986

Mar 1986

Jun 1994

3,270%

-6.1%

N/A*

Starbucks

Jun 1992

Jun 1993

Jun 2000

523%

-6.0%

N/A*

Amazon.com

May 1997

Jun 1997 (R2); Jun 1998 (R1)

Nov 2005

3,043%

6.4%

-1.3%

NvidiaJan 1999

Jun 1999 (R2); Jun 2000 (R1)

Nov 2001

1,043%

1.1%

-0.6%

Netflix

May 2002

Jun 2002 (R2); Jun 2009 (R1)

Dec 2010

2,412%

6.7%

3.3%

Alphabet (Google)

Aug 2004

Sep 2004

Mar 2006

201%

2.5%

1.7%

Super Micro Computer

Mar 2007Jun 2007 (R2)

Mar 2024

9,990%-2.1%-11.3%Tesla

Jun 2010

Sep 2010

Dec 2020

17,192%

6.1%

5.8%

Meta Platforms Inc (Facebook)May 2012

Jun 2012

Dec 2013

46%

0.8%

0.6%

Palo Alto Networks Inc

Jul 2012

Sep 2012

June 2023

1,294%-5.9%-8.15%

Lululemon Athletica

Jul 2007Jun 2015

Oct 2023

503%

-6.3%

-6.8%

Block Inc (Square)Nov 2015

Dec 2015

TBD*

546%

-4.2%

-5.2%

Moderna

Dec 2018

Mar 2019

Jul 2021

1,638%

2.0%

2.2%

Uber

May 2019

Jun 2019

Dec 2023

33%

-1.7%

-2.2%

Blackstone Inc

Jun 2007Jun 2021

Sep 2023

20%

-2.9%

-3.4%

AirbnbDec 2020

Jun 2022

Sep 2023

54%

-0.1%

-0.1%

Source: FTSE Russell, data as of March 28, 2024. Russell 3000 additions are to the Russell 1000 (R1) unless a date is noted for the Russell 2000 (R2). The inception date of the Russell 3000 Index is January 1, 1984.
All performance presented prior to the index inception date is back-tested performance. Past performance is no guarantee of future returns. See the end for important disclosures.
*S&P 1500 Index inception is 1/31/1995, so index performance is not available prior to this date. If the S&P 500 has not added the stock yet, performance is as of March 28, 2024.

Russell US Indexes

17The annual Russell US Indexes
reconstitution day has become one of
the most widely anticipated events in the
US equity market calendar.

Russell US Indexes

187What is Russell recon?
The annual Russell US Indexes reconstitution day has become
one of the most widely anticipated events in the US equity market
calendar. In 2023, Russell recon generated aggregate trading
volumes of $134 billion across US stock exchanges, making it thehighest-turnover day of the year.

The most significant recon methodology changes that reduced index turnover were:

2003

2004

2007

2010

Russell recon is important because the size and composition of the US equity market is constantly changing.
At each recon day, the Russell 3000 universe is recalculated and reset together with the constituent lists for
the Russell 1000, Russell 2000 and the Russell US Style Indexes.

Turnovercalculation
was refined
to distinguishreconstitution fromother corporate
action activity

NASDAQ ‘closing
cross’ was adopted toreflect the enhanced
efficiency of closing
auction prices

Capitalization‘banding’ isimplemented aroundindex breakpoints.
A company’s
capitalization mustmove at least +/- 2.5%
from the breakpoint
to be reassigned toa higher or lower
capitalization index,
or to a different styleindex (see figure 10)

Company-tohome country
assignment rules
are enhanced

Originally conducted quarterly, the annual frequency of the index reconstitution balances the need for
representativeness with a wish to limit unnecessary index turnover. Nevertheless, the overall index impact ofRussell recon has declined over the years because of enhancements to index methodology (see figure 9).

Russell US Indexes

Quarterly schedule
for the review of IPOs

19

Figure 10: How capitalization banding reduces index turnover around the breakpoint

50

1000

40

800

30

600

20

400

10
0

NUMBER OF STOCKSTURNOVER PERCENTAGE

Figure 9: Impact of recon on Russell 2000 index turnover

Russell 1000 Index
The largest 1,000 companies
become members of theRussell 1000 Index.

200

1996

2000

2005

2010

2015

2020

0
2023

Between 1996 and 2005, the one-way turnover resulting from recon (the higher of index additions
or deletions, divided by the starting index value) for the Russell 2000 index averaged 29.8%, while
495 stocks were affected. But between 2006 and 2023, turnover fell to an average 11.8% and thenumber of stocks affected fell by around half.
Average:
1996–2005

Average:
2006–2023

Difference

Turnover percentage

29.8%

11.8%

-18.0%

Number of stocks

495

245

-250

2.5%
BANDING

2.5%

ABSOLUTE
BREAKPOINT

Russell 2000 Index
The next largest 2,000
become members of theRussell 2000 Index.

Source: FTSE Russell, as of April 2024.

Source: FTSE Russell, as of April 2024.

Russell US Indexes208Enhancing index design
Over the forty years since the creation of the Russell US Indexes,
we have made other enhancements to our index methodology toensure that indexes remain representative, objective and useful toinvestors. Index design changes have also reflected client feedback,the evolution of investor preferences and the ongoing changes tothe US equity market’s structure.
These enhancements are highlighted in blue in figure 11, which also
shows the key Russell US Index launches since 1984 and the total index
return since inception.

Russell US Indexes

21Methodology enhancements

Figure 11: Russell US Indexes: A timeline of enhancements

Index launches
Total return index value

TOTAL RETURN INDEX USD (LOGARITHMIC SCALE)

January 1984

100,000

10,000With the launch of
the Russell 1000®,
Russell 2000®, andRussell 3000® Indexes,
Russell introduced
the first indexes tobalance broad market
representation withinvestor accessibility
and the first to
segment the market
into large and small
cap segments. Russell
Indexes were also
the first to float-adjust
indexes, with history
starting December
1978.

January 1987
Russell 1000 Style
Indexes launched, thefirst style indexes.

June 1993
Russell 2000 Style
Indexes launched,using multi-variable
style methodology
back to inceptionof December 1978.
Companies could
be assigned to both
growth and value.

1987
Frequency ofReconstitutionchanged fromquarterly to semiannual.

January 2002
Began using
primary exchange
pricing rather thancomposite priceto improve index
replicability.

June 1995
Russell 1000 Style
Indexes adopt
multi-variable stylemethodology.

June 1989
Frequency ofReconstitutionchanged from semiannual to annual
based on researchand client feedback,to balance market
representation withminimal turnover.

June 2004
Effective datechanged to last Friday
in June to avoid US
holiday-related market
illiquidity.
Enhanced index
files allow managers
to rebalance on
preferred date.
Nasdaq Closing
Cross implemented
as source for closing
prices, improving
replicability.

1000

June 1990
Russell 2500

100

1978

Russell US Indexes

1982

1986

Nov 1991
Russell Midcap

1990

1997

June 2007
Banding incorporated
around market cap
breakpoints for existing
index members,
reducing turnover andensuring movement
between small and large
cap only when material.
If Recon date falls on 28,
29, 30, previous Friday.

June 2005
Russell Microcap,
Russell 3000E

Sept 1992
Russell Top 200

1994

Sept 2004
Eligible IPOs added toindexes quarterly rather
than annually, reducing
reconstitution turnoverwhile improving market
representation.

2001

2005

June 2011
Banding for stylecomposite value
score to prevent theoccurrence of smaller,
less meaningful
movements. Growthvariables updated
due to declining
analyst coverage ofthe previously used
Growth metric.
June 2013
If Recon date falls on
29 or 30, previous
Friday.

Feb 2011
Russell Stability
Indexes™ launched,representing the Third
Dimension of Style™
based on quality andvolatility metrics.

2009

Sept 2017
Minimum 5% voting
rights hurdle introduced
for new constituents.
Five year grandfathering
period for existing
constituents (until 2023).

2013

June 2017
Reconstitution rank day
moved to an earlier datein May (from month-end).
Style indexes still ranked
at end of May. Free
float and share changes
implemented quarterly(from annually andmonthly, respectively).

2016

June 2023
Rank date moved
to last business
day in April,including Styles.
March 2019
FTSE Global Style
Index Series

2020

2023

Source: FTSE Russell, as of December 29, 2023. Past performance is no guarantee of future results. Please see the end of this presentation for important legal disclosures.

22

Conclusion

40 years ago

Today

A few dedicated staff at Frank Russell company helped
provide the foundation for what is now one of the mostrecognizable index brand names in the financial market.

In early 2024, the United States is the world’s largest equity market by an order of magnitude. Its biggest
companies, like Apple, Microsoft, Amazon, Alphabet and Meta, are famous around the world for theirproducts and services.

For Kelly Haughton and his colleagues, a clear idea ofindex design and persistence in implementation paid off.

But the choice of index to measure the ever-changing risk and return characteristics of US stocks has neverbeen a foregone conclusion.
The Russell US Indexes are well established as representative, relevant and reliable benchmarks for the US
equity market, with approximately $9 trillion benchmarked to a Russell index. Since iShares launched theirfirst Russell ETF in 2000, ETF assets tracking a Russell index have grown to more than $600 billion as ofMarch 2024.
Russell US Indexes have gained widespread acceptance and usage by:– Incorporating future equity market winners up to a decade before competitor indices– Introducing the first free-float-adjusted equity index methodology– Forming a modular index family segmented by size to help in portfolio analysis and management– Dividing the market into growth and value style segments– Making regular methodological enhancements to transparent rules, improving usability

Russell US Indexes

23

FTSE RussellYour essential index partner for a changing world

For 40 years, the Russell US Indexes have mapped the risk andreturn characteristics of the US equity market and its size andstyle components.
Relevant, representative and reliable, the Russell US Indexes arebuilt by professionals to meet the needs of professional investors.

Find out more

Russell US Indexes24About FTSE Russell
FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives. As a trusted
investment partner we help investors make better-informed investment decisions, manage risk, and seize opportunities.
Market participants look to us for our expertise in developing and managing global index solutions across asset classes. Asset owners, asset managers,
ETF providers and investment banks choose FTSE Russell solutions to benchmark their investment performance and create investment funds, ETFs,
structured products, and index-based derivatives. Our clients use our solutions for asset allocation, investment strategy analysis and risk management,
and value us for our robust governance process and operational integrity.
For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks andinvestment solutions that open up new opportunities for the global investment community.

To learn more, email info@ftserussell.com; or call your regional Client Service Team office:EMEA+44 (0) 20 7866 1810
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