Investors underwent the busiest trading day of the year last Friday as the FTSE Russell completed the annual rebalancing of its indices tied to trillions of dollars of investor funds.
Some of the biggest changes came in FTSE Russell’s style indices, which saw stocks traditionally labelled as growth, including Facebook parent group Meta, Netflix and Paypal move into the Russell 1000 Value index, while seeing their weightings in the FTSE Russell 1000 Growth index fall.
Elsewhere, meme-stock favourite GameStop will also rotate into the value index, losing its place in the growth index in the process.
Companies with low price-to-book and lower growth values will be added to the index. FTSE Russell also uses a company’s 5-year sales per share growth to determine whether it should be part of a growth or value investment universe.
There are currently no ETFs in Europe tracking the FTSE Russell 1000 Value index. The only previous strategy, the Lyxor Russell 1000 Value UCITS ETF (LIAM), was liquidated in April 2021.
Value has outperformed growth over the past 18 months and was the best performing factor in 2021, as the economy reopened following the pandemic. Investors have also been turned off growth in recent months as soaring inflation has forced the Federal Reserve to raise interest rates.
This has led to a sharp decline in some growth stock darlings which dominated the market for almost a decade.
For example, year to date, Meta has seen its share price decline by 50%, Netflix by 68% and Paypal by 60%, meaning they are now considered value stocks by FTSE Russell’s criteria.
The Nasdaq Cross Closing saw a record day for trading as the FTSE Russell completed its reconstitution on 23 June, with a record 3.3 billion shares representing $63.8bn executed in 2.04 seconds.
This compares with 2.3 billion shares representing $80.9bn executed in 2021.
It comes as investors who benchmark their performance to the indices change their portfolio to represent the changes made in the rebalance.
Susan Quintin, global head of Equity index product Management at FTSE Russell, said: “Our annual index rebalancing remains such an important event for investors, ensuring that the Russell US Indexes accurately reflect the ever-changing state of the US equity market and its market segments.
“This year has been no exception, for the first time we have two companies with a total market cap of over $2trn and the first reshuffle of the largest five companies since 2019.”