FTSE Russell, the world's second-largest index provider, has announced significant changes to its US growth and value indices to limit the influence of large constituent stocks. This overhaul affects over $7 trillion in equity funds, necessitating a major reorganization.
Under the new guidelines, no single company's market capitalization will exceed 22.5% of the style index. Moreover, the combined market capitalization of companies with a weight of 4.5% or more will not surpass 45% of the index. These adjustments will start in March next year and will be reviewed quarterly and annually.
The new limits were adopted after industry consultations in August, receiving widespread support. Concerns had been raised, particularly about the high returns from the Russell 1000 Growth Index. This change addresses market worries about the dominance of large tech stocks, which have become so substantial in many portfolios that they approach regulatory limits. Two months ago, S&P Dow Jones Indices made similar adjustments to curb the dominance of the largest companies.
FTSE Russell's indices are based on the US market, with constituents required to be American companies. These indices include a diverse range of stocks, offering broad market coverage. The Russell style indices serve as investment benchmarks for approximately $7.2 trillion in stock assets, representing 68% of all assets linked to Russell indices.
