By: Catherine Yoshimoto Director, Product Management, FTSE Russell
Friday, June 24 was our annual recon day, where we recalibrated the Russell US index family to accurately reflect the current state of the US equity market. And while Russell Index performance since last year’s recon told the story of inflation fears, when it came to index composition changes the biggest stories were about the biggest companies.
A tale of two tech giants
For the first time since 2019, the largest five Russell 3000 companies by market cap reshuffled their size rankings. While Apple and Microsoft held last year’s spots as the first and second largest companies respectively, Apple widened its lead with an increase in market cap of 17.15% compared with Microsoft’s increase of 8.06%.
However, despite falling to a more distant second place, Microsoft reached an important milestone of its own. The tech giant joined Apple in having a total market cap of over $2 trillion—the first time ever that multiple companies have broken this threshold.
Tesla’s battery-charged rise
In a stark about-face from the previous year, US equity markets haven’t fared well since last year’s recon. Representing the US broad market, the total market capitalization of the Russell 3000 Index decreased by 5.9%, down from $47.7 trillion in 2021 to $44.9 trillion in 2022. In effect, the breakpoint between large cap and small cap decreased by 11.5% from $5.2 billion last year to $4.6 billion for 2022.
While the Russell Indexes have performed in negative territory over the past year, the majority of the ten largest companies outperformed the broader indexes. Seven of the top 10 companies in the Russell 3000 Index increased their total market caps from 2021, but no increase was quite so pronounced as Tesla’s.
We added Tesla to the Russell 3000 just three months after its June 2010 IPO—a full decade before the electric vehicle company became consistently profitable. Our indexes have since tracked its high-flying journey to the ranks of US equity mega caps, including the period since last year’s reconstitution. During this time, Tesla’s market cap soared 38.46%, propelling it to a spot among the top five largest companies.
As shown, in its rise Tesla leapfrogged Berkshire Hathaway—which held its place as the sixth largest company—and Meta, which slipped from the fifth to the seventh largest company after its market cap sunk -39.05% for the year.
Meta is no longer just a growth company
Meta’s declining position among the mega caps wasn’t the company’s only noteworthy 2022 recon story. After a long run as a 100% growth company, in this year’s recon Meta shifted to 79% growth and 21% value, making it the largest addition to the Russell 1000 Value Index by both size and weight.
Meta’s partial shift to value was based on a number of metrics, including price-to-book ratios, growth forecasts, and historical sales. Our multivariable ranking process determined that Meta was value-oriented relative to other stocks in the Russell 1000, and we assigned its weight in the value index accordingly.
Capturing the big company stories on recon day
As we’ve said time and time again, an index is only useful to the extent that it accurately reflects the market it’s designed to represent. The US equity markets are ever-changing, and this past year has made for some particularly headline-worthy stories for a few of the largest US companies. When these changes happen among the mega caps, it’s important that our indexes capture them—and our annual Russell recon is key to ensuring that they do.
Please see our summary of final 2022 recon changes for more details.
This post first appeared on July 8th 2022, FTSE Russell Blog
PHOTO CREDIT: https://www.shutterstock.com/g/tanaonte
Via SHUTTERSTOCK
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