The Russell 3000 Index tracks the performance of the largest 3,000 U.S. companies by market capitalization. This index represents approximately 98% of the U.S. equity market.
Learn more about the Russell 3000 index, how it works and whether it makes sense for you to invest in products that track this index.
Definition of Russell 3000 Index
The Russell 3000 Index measures the performance of the broad index of the largest 3,000 US companies. This index, provided by FTSE Russell—a benchmarking company owned by the London Stock Exchange—represents approximately 98% of the U.S. equity market. The Russell 3000 Index was launched on Jan.1, 1984.
The constituents of the Russell 3000 index must have shares that trade in the U.S. and are selected based on their market capitalization.
As of May 31, 2021, the index had 3,057 holdings with the following companies featuring in the top ten:
|Amazon Com Inc.||Consumer Discretionary|
|Alphabet Inc Cl. A||Technology|
|Alphabet Inc Cl. C||Technology|
|Berkshire Hathaway Inc.||Financial|
|JP Morgan Chase and Co.||Financial|
|Tesla Inc.||Consumer Discretionary|
|Johnson & Johnson||Health Care|
How does the Russell 3000 Index work?
The Russell 3000 Index is a representation of the largest 3,000 US companies and gives an unbiased exposure of the U.S. equity market.
The Russell 3000 index is reconstituted once every year.
FTSE Russell announces a date, called the “rank date”, in May, and the top 3,000 companies by market cap on that day make it into the index. While the market cap value is based on market cap on rank day, the actual reconstitution typically occurs on the last Friday of June.
Companies need to meet certain eligibility requirements in order to be included in the Russell 3000 index. These requirements include a minimum of $30 million market cap, $1 share price on rank day, and 5% of outstanding shares that are available to trade in the marketplace.
Companies that have a small portion of their shares on the marketplace are not eligible on the Russell indexes.
Any initial public offerings that take place between two reconstitutions and are eligible for inclusion in the index get added to it on a quarterly basis.
Russell 3000 vs S&P 500
Although the Russell 3000 and the S&P 500 are both market-capitalization weighted indexes and have a high correlation in returns, there are a few differences between the two.
|Russell 3000||S&P 500|
|Inception||Jan. 1, 1984||Originally Jan. 3, 1928, but the current version was launched on March 4, 1957.|
|Number of stocks||3,057 (as of May 31, 2021)||500|
|Changes to index||Reconstituted Annually||Rebalanced Quarterly, but reconstitution can happen any time.|
|Market cap requirement||$30 million||$11.8 billion|
Pros and Cons of Investing in Russell 3000 Index
Broad market exposure
Decent returns for long term investors
Excessive exposure to large caps
Overweight on some sectors
- Broad market exposure: Exposure to 3,000 different companies offers diversification to investors.
- Decent returns for long-term investors: The long term return for the Russell 3000 index has been in line with the benchmark S&P 500 index.
- Excessive exposure to large caps: While it may invest in 3,000 companies, the index is skewed heavily towards large caps and may not have adequate representation for smaller firms. The average market cap of the Russell 3000 constituents as of May 31, 2021 was nearly $416 billion.
- Overweight on some sectors: More than 70% of Russell 3000 Index’s allocation is in just five sectors—Technology, Consumer Discretionary, Industrials, Health Care and Financials. Investors could miss out on gains in other sectors.
What the Russell 3000 Index Means for Individual Investors
Individuals who invest in the Russell 3000 Index gain market exposure to 98%of the top 3,000 companies.
Investing in the Russell 3000 allows investors to have more exposure to the market beyond just large-cap equities and growth in the market, though some critics believe that the Russell 3000 is overweight on certain sectors and with its performance in line with the S&P 500, doesn’t quite offer meaningful exposure to smaller companies.
Investors can’t invest in an index directly, but you can buy mutual funds and ETFs that track it such as the Vanguard Russell 3000 ETF (NYSE: VTHR) and iShares Russell 3000 (ETF) (NYSE: IWV).
- The Russell 3000 Index consists of the largest 3,000 US companies by market capitalization.
- Companies need to meet certain eligibility criteria to be included in the Russell 3000 index which is reconstituted annually.
- The Russell 3000 index is overweight on certain sectors and larger companies and may not adequately represent smaller companies.