As tech goes, so goes the

Russell 2000.

When the newly reconstituted benchmark index of

small-cap companies debuts on July 1,

ITG Research

anticipates that 179 tech companies will lose their spots.

This decline in tech reverses a trend that started in June 1996. In the past five years, technology ballooned from about 14% of the index to last year's anchor, then making up more than 25% of the weighting. This year its makeup is expected to drop to 18%. Financial and consumer staples will likely be among the gainers.

Susan Curry, portfolio officer at

John Hancock

, said this year's restructuring mirrors sector rotation. The rampant, relentless selling of technology in the past year has taken its toll: Once hot names like

Webvan

(WBVN)

and

buy.com

(BUYX)

have been so ravaged that they're threatened with being delisted from the

Nasdaq Stock Market, not just the Russell 2000. Both have share prices of less than 50 cents.

During last year's annual rebalancing of the Russell 2000, technology was still hot and companies with recent

initial public offerings were joining the ranks of the index in droves. And formerly small-cap tech companies were exploding out of the Russell 2000 and into the

large-cap world.

"This year's rebalancing is a total reversal from last year," said Brad Lawson, senior research analyst with

Frank Russell Co.

, which oversees the Russell 2000 and 20 other market averages.

Russell's core index is the

Russell 3000

, which contains the companies with the largest

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market caps. It's weighted to give the most influence to the biggest names, like

General Electric

(GE) - Get General Electric Company (GE) Report

. The same ranking produces the

Russell 1000

collection of the 1,000 largest companies and the Russell 2000 list of the smaller two-thirds of the names.

The folks at the Russell take a picture of the entire market each year on the last trading day of May. The first version of this year's revamping gets released this Friday, after the closing bell. Two more updates will be made before the final list goes into effect on the first trading day in July, which this year falls on July 2. Fund managers who use the Russell 2000 as a benchmark then rush into the market to integrate the changes -- while still other investors already have entered the fray by trading the names they suspect will be added to or cut from the final list.

Welcome the Castoffs

Like an older brother's hand-me-downs, the small-cap Russell 2000 will be receiving a lot of big-brother Russell 1000's tech castaways. Names such as

Internet Capital Group

(ICGE)

and

Inktomi

(INKT)

are expected to drop down to the small-cap index. For the Russell 2000, the highest market cap on the index likely will be about $1.5 billion, while the smallest stocks will be about $135 million to $140 million in market cap, says Steven DeSanctis, head of small-cap research at

Prudential Securities

.

With this year's rebalancing, retro is cool once again. Curry talks about

Red Hat

(RHAT)

, a software maker for Linux-based systems and

Microsoft's

(MSFT) - Get Microsoft Corporation (MSFT) Report

only major competition in the operating systems space, as a great example of the phenomenon. "The company's market cap dropped from $23.5 billion to $900 million," she says. "It's going to drop from the Russell 1000 and into the Russell 2000."

And once-soaring tech names, like Webvan, will drop off the lists altogether.

While the Russell 2000 was rebalanced a year ago to have fully one-quarter of its weight come from tech names, that portion is expected to fall to 18% when the annual rebalancing is complete. (Because the index is rebalanced only once a year, the current weighting of tech is 13%, dragged lower by sagging stock prices.)

Health care is expected to make up another 12% of the index, financial services about 12% and utilities 3.8%. Consumer services likely will make up another 13% of the index, DeSanctis says.

Lawson of Frank Russell says to expect a lot more consumer-related stocks, financial-service names and health care in his company's indices overall. "Welcome to value land."