2020 Russell US Indexes Reconstitution: Unlike any seen before? Jermal Chandler (Cboe Options Institute), Amy Whitelaw (BlackRock), Philip Lawlor and Catherine Yoshimoto (FTSE Russell) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 60 mins

The Russell US Indexes are designed to reflect the ever-changing US equity market, and the annual reconstitution process is critical to maintaining accurate representation.

During this highly-anticipated market event, the breakpoints between large, mid and small cap are redefined to ensure market changes that have occurred in the preceding year are captured. Companies are also revaluated to determine where they lie along the investment styles spectrum. 

The Responsible Investor Digital Festival: Summer 2020 - RI DigiFest for short - is our digital response to that need for leadership. It is time to show that responsible investment is the answer to our long-term financial and societal challenges: we believe that an on-line ESG festival of ideas and action is the way to do that.

By Luke An Lu, director, Yield Book mortgage research

As the COVID-19 pandemic began roiling US markets in March, few areas were hit harder or more swiftly than the commercial real estate (CRE) and CMBS markets. At the end of March, we published research demonstrating an already profound hit to several real estate sectors. Looking ahead, the length and depth of the economic downturn is still uncertain, and prospects for some real estate sectors remain dim. However, more recent data points to a steady recovery in other US real estate sectors.

Of all real estate sectors, the pandemic delivered the hardest and swiftest blow to hotels and retail. COVID-19 impact on the US hotel sector was immediate, with a drastic decline in occupancy and revenue as business and personal travel—as well as conventions—fell sharply. Data reported during the early weeks of lockdown reflected the severity of hotel sector impact, with only 3 in 10 hotel rooms occupied during the week of...

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

By Luke An Lu, director, Yield Book mortgage research

As the COVID-19 pandemic began roiling US markets in March, few areas were hit harder or more swiftly than the commercial real estate (CRE) and CMBS markets. At the end of March, we published research demonstrating an already profound hit to several real estate sectors. Looking ahead, the length and depth of the economic downturn is still uncertain, and prospects for some real estate sectors remain dim. However, more recent data points to a steady recovery in other US real estate sectors.

Of all real estate sectors, the pandemic delivered the hardest and swiftest blow to hotels and retail. COVID-19 impact on the US hotel sector was immediate, with a drastic decline in occupancy and revenue as business and personal travel—as well as conventions—fell sharply. Data reported during the early weeks of lockdown reflected the severity of hotel sector impact, with only 3 in 10 hotel rooms occupied during the week of...

The Responsible Investor Digital Festival: Summer 2020 - RI DigiFest for short - is our digital response to that need for leadership. It is time to show that responsible investment is the answer to our long-term financial and societal challenges: we believe that an on-line ESG festival of ideas and action is the way to do that.

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

The 2020 Russell US Indexes Reconstitution, which began June 8 and concludes Friday, June 26, underscores a notable divergence between the large and small ends of the US equity market.

FTSE Russell’s June 5 announcement on projected changes to the Russell US Indexes, followed by approximately $9 trillion in investor assets, points out that in a year in which total US market capitalization decreased by 1%, the market capitalization of the 10 largest US companies increased by more than 23%. In fact, three companies (Microsoft, Apple & Amazon), surpassed $1 trillion in size as of May 8 rank day.

The market capitalization of the smallest US company this year (Limestone Bancorp), on the other hand, is $94.8 million, representing a 38% decline in the smallest company from 2019 and the first time since 2009 that the smallest stock's market capitalization is less than $100 million.

Catherine Yoshimoto – director, product management, FTSE Russell:

...

Join Philip Lawlor, managing director, Global Markets Research, to gain critical insights into the ongoing impact COVID-19 is having on global equity and bond markets.

Register for a webinar in your region.

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

Join Philip Lawlor, managing director, Global Markets Research, to gain critical insights into the ongoing impact COVID-19 is having on global equity and bond markets.

Register for a webinar in your region.

In this paper, we look at the evolution and characteristics of the Emerging Market (EM) fixed income asset class, since the 1980s, drawing on FTSE Russell data. We find EM fixed income is now a substantial and investible asset class and very different from the asset class that suffered major dislocation in 1997-98, with little contagion in recent years. Empirical evidence, including the Great Lockdown, does not support the view that EM fixed income is a pure risk-on asset. The variable correlations of returns with other assets offer portfolio diversification benefits. This evidence helps debunk some of the frequent misperceptions associated with EM fixed income.

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

By Robin Marshall, director, fixed income research

Risk rally and QE have driven in short-dated Canadian investment grade spreads relative to 7-10 yrs….

Credit markets extended April's rally in May, with spreads narrowing further versus government bonds. This was driven by renewed risk appetite, and central bank QE programs. The Bank of Canada's QE program, announced on March 27, is restricted to investment grade (IG) corporates only, and maturities of five years or less. The chart below suggests the program has helped tighten Canadian short dated IG spreads since the announcement, which exceeds the tightening in 7-10 yr IG spreads.

Canada credit spreads: 1-3yr and 7-10yr

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.

…but Canadian high yield spreads & yields are below 2015/16 peaks, despite not being in QE

But there is a...

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

By Philip Lawlor, head of Global Markets Research

Not surprisingly, factor performance in May captured the spirited turn in investor confidence amid early signs that the collapse in economic activity from the pandemic shock may be bottoming out.

In a notable about-face, markets staged a powerful rotation into long-battered smaller cap (Size) stocks, particularly in the UK and Asia Pacific ex Japan, which both outdistanced their broad market indexes by nearly four percentage points. Value also outperformed (albeit more modestly) in most markets.

These gains came at the expense of Low Volatility and Momentum, which had held strong during the worst of the February/March market slump. Quality’s winning streak also stalled in May, with the factor actually lagging in Europe and Asia Pacific.

Regional factor returns relative to home market for May 2020 (local currency %)

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no...

In this paper, we look at the evolution and characteristics of the Emerging Market (EM) fixed income asset class, since the 1980s, drawing on FTSE Russell data. We find EM fixed income is now a substantial and investible asset class and very different from the asset class that suffered major dislocation in 1997-98, with little contagion in recent years. Empirical evidence, including the Great Lockdown, does not support the view that EM fixed income is a pure risk-on asset. The variable correlations of returns with other assets offer portfolio diversification benefits. This evidence helps debunk some of the frequent misperceptions associated with EM fixed income.

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company.