Beneficiaries include tech small stocks, which are expected to comprise a bigger portion of the widely watched small company index when investment firm Frank Russell Co. conducts its yearly rebalancing on June 30. Shares of likely candidates such as software maker MSC Software Corp. More assets are held by managers who use the index as a benchmark for their performance. Everybody likes to beat the crowd, though. And this year in particular, investors have placed bets on potential new index members much earlier than usual.
Investors are eager to avoid the buying spree that occurs as the annual rebalancing draws near.
Typically, stocks added to the Russell 2000 would rise at the rebalancing as index managers buy or add the shares to mimic the index. On average, the 480 potential new stocks to be added to the index are up 16.3 percent between February 28 and May 17 while the proposed deleted list of some 260 companies lost 3.3 percent over the same period, said Bill Kan, a Merrill Lynch small-cap strategist. Tech's weighting in the Russell 2000 is expected to rise by 5.6 percentage points to about 18 percent, but the total number of tech names will fall from 466 to 437 as many will drop out of the index in June due to the bear market in tech shares in the past year, Merrill Lynch told clients in an early May note. Telecoms and software will be the two largest tech groups to enter the index with 29 and 19 new names, respectively, while some 113 Internet-related stocks will drop out, according to Merrill Lynch. Unlike last year when technology became anathema to many investors, small-cap managers said this year the addition of more tech stocks might help the benchmark's performance.