Russell Recasts Its Indices

The company releases the 2003 membership in its widely followed indices.
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Frank Russell Co. released the

final list for its widely followed indices Wednesday, a roster that reflected a widespread decline in market capitalization.

A total of 289 companies were added to the Russell 3000, Russell 2000 and Russell 1000, this year, including 72 banks, 17 biotech firms and 10 real estate companies. The areas that showed the largest gains in the Russell 2000 were consumer discretionary, auto and transportation industries, while utilities suffered the largest decline.

Such Internet survivors as

AskJeeves

(ASKJ)

,

MarketWatch.com

(MKTW)

and

TheStreet.com

(TSCM)

, the publisher of this Web site, also joined the Russell 2000.

Ameritrade

(AMTD) - Get Report

and

ImClone Systems

(IMCLE)

moved from the small-cap Russell 2000 to the large-cap Russell 1000, while retailers such as

Petco Animal Supplies

(PETC)

and

American Eagle Outfitters

(AEOS)

dropped from the Russell 1000 into the Russell 2000.

Some expected newcomers on the Russell 2000 enjoyed a bounce Wednesday, including

Ariba

(ARBA)

, which closed up 47 cents, or 15.1%, to $3.58.

Every year, the Frank Russell Co. reconstitutes its 21 indices in order to accurately rank the 3,000 largest stocks in the U.S. stock market by market capitalization as of May 31.

On June 13, the preliminary Russell additions and deletions are announced, and the newly reconstituted indices go into effect on July 1. The Russell reconstitution is a big deal for index fund managers, who must mimic the indices and thus sell the deletions and buy the additions.

Those stocks entering the Russell 2000 outperformed those leaving by a whopping 55%, based on statistics as of June 16. The spread between the performance of stocks entering and leaving the Russell 1000 was approximately 23%.

But with the changes well-publicized in advance, indexers (and those seeking to get in front of them) are increasingly accelerating the timetable for when they trade the Russell reconstitution.

"You pretty much should have seen all the consequences of the reconstitution on the 30th," a Bear Stearns trader said Wednesday.

The reconstitution was more extreme for the small-cap sector than the large-caps, but both suffered an overall decline in market capitalization.

The small-cap benchmark turned over nearly 20% this year, compared with a 2.5% turnover rate for the Russell 3000 and 2% turnover for the large-cap Russell 1000, according to Russell portfolio manager Erik Ogard, citing approximate numbers based on preliminary additions and deletions.

The largest stock in the index,

General Electric

(GE) - Get Report

, decreased 7% from 2002, and 40% from 2001. The market capitalizations of the median companies in the Russell 3000 and the Russell 2000 decreased 11% from a year ago.

Only six IPOs jumped directly into the large-cap Russell 1000 index, compared with 70 in 2000.

The largest businesses sectors in the Russell 2000 did not change from last year, led by financial services, followed by consumer discretionary, technology and health care.