The annual reconstitution of Russell U.S. equity indices is considered a significant market event given the size of asset flows and trading volume.
Market participants can utilize the Russell Index futures complex to efficiently implement rebalancing changes, avoid operational burden and minimize tracking error.
Trading functionalities such as BTIC allow investors with existing assets to maintain exposure to the index while implementing portfolio changes. For Investors with new fund flows, moving the new assets directly into futures allows the portfolio to remain fully invested.
The U.S. equity landscape is continuously shifting. Technology stocks have led an impressive rebound in equities, recovering all of the steep losses from earlier in the year following shifts in trade policy. Small-cap stocks, however, have been lagging amid concerns over the economy, in the U.S. and globally. Investors are eagerly waiting for the Federal Reserve’s next step in its monetary policy as the central bank balances the risk of sticky inflation with a stable labor market in cutting interest rates.
The annual rebalancing of Russell indices in June to reflect changes in the underlying capital markets is a major event in equities that is often marked by massive asset flows, high volatility and heavy trading volume. The rebalance, known as the Russell Reconstitution, of the Russell 1000, 2000 and 3000 indices, will take place across the market cap segments and investment styles, with changes taking place after the markets close on Friday, June 27, and becoming effective at the market open on Monday, June 30.
Approximately $8.5 trillion is benchmarked to Russell indices and roughly $2 trillion tracks them passively. Therefore, a significant amount of capital typically changes hands at the reconstitution. For example, nearly $220 billion worth of stocks were traded at the market close during the 2024 reconstitution.1
The size of the rebalance provides risk as well as opportunities for market participants, particularly in light of ongoing equity market volatility. Investors readjusting their positions to reflect index changes must avoid slippage and the subsequent tracking error. At the same time, the rebalance presents potential opportunities for investors who can step in to provide liquidity.
CME Group lists futures on the Russell U.S. equity index family, including the Russell 1000, Russell 2000 and the Russell Growth and Value indices. Since relisting on CME in 2017, the product suite has seen growth in trading volume and open interest, especially in the Russell 2000, which measures the performance of the small-cap segment (see our related small-cap article here). The contracts are utilized by investors to express directional views, implement any shift in allocations and manage risk exposure
On reconstitution day, trading volumes across both E-mini Russell futures and the Micro E-mini Russell 2000 Index futures tend to be higher than the June daily average volume (see Exhibit 1). For example, on June 28, 2024, the E-mini Russell futures complex traded 262K contracts, 50% higher than the June 2024 average daily volume (ADV).
Similarly, in June 2024, open interest (OI) increased by nearly $3 billion in notional terms ahead of the reconstitution, an evidence of investors repositioning prior to the reconstitution date.
Exhibit 1: Russell 2000 - June daily average volume versus Reconstitution Day volume in 2024
Implementing Russell Rebalancing changes with Russell futures contracts
In addition to mega-cap names changing their leadership positions, smaller cap names at the lower end of the market capitalization spectrum will also undergo weight changes. The process of turning over 3000 names while trying to maintain the tracking error to the underlying benchmark is a significant operational undertaking.
One of the ways in which market participants can implement Russell reconstitution changes while keeping the risk budget in check and preserving capital efficiency is via futures. Weoffer around-the-clock trading access and liquidity to the Russell Equity Index futures and options.
For investors needing to manage existing flows and change positions, several execution functionalities are available.
- Basis Trade at Index Close (BTIC) allows market participants to trade at a fixed spread to the index closing value. We offer BTIC functionality on the E-mini Russell 1000 (RS1) and E-mini Russell 2000 (RTY) futures contracts. By buying E-mini Russell 2000 Index futures via a BTIC transaction and selling a cash portfolio on the close, an investor is replacing their stock position with futures. Average daily volume of BTIC on Russell 2000 futures, in particular, have grown by nearly 600% since 2017.
- Exchange for Physical (EFP) allows market participants to exchange their portfolio of shares tracking an index for an equivalent-sized Equity futures contract, and then carry that futures contract across reconstitution. Following the reconstitution, the investor can then execute another EFP to move their exposure back to a portfolio of shares or can continue to hold the contract if they choose.
- Derived blocks allow market participants to place larger-sized block trades without distorting market pricing. The functionality enables greater liquidity and execution flexibility by allowing liquidity to be sourced from the related market. Permitted hedging instruments include ETFs and stock baskets. The functionality is now available for E-mini Russell 2000 Value, E-mini Russell 2000 Growth, E-mini Russell 1000 Growth and E-mini Russell 1000 Value Index futures.
A recap of the past 12 months
A lot has happened in the U.S. equity market during the past 12 months leading to the reference date, and the performance of Russell U.S. equity indices reflect the changing market environment.
During the past 12 months ending April 30, 2025, (the reference date for the reconstitution) larger-cap stocks outperformed small caps, a continuation of a trend observed last year. When broken down into sub-periods, the large-cap outperformance actually came from the returns accrued during the first six months (see Exhibit 2).
Exhibit 2: Performance - large cap versus small cap
| Russell 1000 | Russell 2000 | ||
|---|---|---|---|
| May 2024 - April 2025 | 10.47% | -0.50% | |
| Nov 2024 - April 2025* | -15.07% | -2.82% | |
| May 2024 - Oct 2024* | 11.28% | 13.19% | |
| May 2023 - April 2024 | 20.97% | 11.58% | |
* Sub-periods
Source: FactSet, CME Group. Data as of 04/30/2025. Performance calculated using monthly price returns in USD.
Growth stocks outperformed value stocks in a continuation of the prior year’s trend. However, the outperformance of growth stocks took place during the first six months of the year (see Exhibit 3).
Exhibit 3: Growth versus value
| Russell 1000 Growth |
Russell 1000 Value |
||
|---|---|---|---|
| May 2024 - April 2025 | 13.80% | 6.27% | |
| Nov 2024 - April 2025* | 0.001% | -5.95% | |
| May 2024 - Oct 2024* | 15.98% | 9.43% | |
| May 2023 - April 2024 | 30.75% | 10.79% | |
* Sub-periods
Source: FactSet, CME Group. Data as of 04/30/2025. Performance calculated using monthly price returns in USD.
Taken together, equity market volatility seen since the U.S. presidential election last November has been hitting large caps harder than small caps, and value stocks more than growth stocks. The spread between large caps and small caps has widened, compared to last year, while the style spread has considerably narrowed (see Exhibit 4).
Exhibit 4: Size and style spread
| Size Spread (Large - Small) | Style Spread (Growth - Value) | |
|---|---|---|
| 12 months ending 04/30/2025 | 10.96% | 7.52% |
| 12 months ending 04/30/2024 | 9.39% | 19.96% |
Source: FactSet, CME Group. Data as of 04/30/2025. Performance calculated using monthly price returns in USD.
What do the new Russell indices look like?
The preliminary analysis, based on the pro-forma files released by FTSE Russell, indicates that the total market capitalization of the U.S. equity market has grown from the prior 12 months ($58.4 trillion versus $53.0 trillion). Along with the growth in market capitalization comes notable changes in index leadership, additions/deletions and size breakpoints which all contribute to the overall index turnover.
Leadership changes
Apple will take its position as the largest stock, with Microsoft moving down to second. Nvidia remains firmly in third place while Amazon moves up to the fourth and Meta moves down to fifth. Given that the top 5 constituents are part of the mega cap, Mag 7 cohort, any small change in index weight translates to significant portfolio repositioning.
Exhibit 5: Top 5 constituents - 2025 versus 2024
| Ranking | Top Five Constituents - 2025 | Top Five Constituents - 2024 |
|---|---|---|
| 1 | Apple | Microsoft |
| 2 | Microsoft | Apple |
| 3 | Nvidia | Nvidia |
| 4 | Amazon | Alphabet |
| 5 | Meta | Amazon |
Source: LSEG. Data as of May 30, 2025
Adds and deletes
Exhibit 6 shows the total number of additions and deletions for the 2025 Russell U.S. equity universe. In addition to graduations and demotions, which are natural movements between market cap segments, investors need to acquire additional exposure to newcomers to the Russell indices (see column Outside of Russell universe).
Exhibit 6: 2025 pro-forma adds and deletes
| Adds | Outside of Russell Universe | Graduations | Deletes | Demotions | |
|---|---|---|---|---|---|
| Russell 1000 | 37 | 17 | 20 (From R2000) | 26 | 25 (to R2000) |
| Russell 2000 | 242 | 84 | 133 (From Microcap) | 174 | 93 (to Microcap) |
Source: FTSE Russell. Preliminary data as of 05/30/2025.
Exhibit 7: Historical turnover
| Average Turnover
1996 -2005 |
Average Turnover
2006 - 2024 |
|
|---|---|---|
| Turnover Percentage | 29.8% | 11.8% |
| Turnover Count | 495 | 244 |
Source: FTSE Russell.
Market cap breakpoints
The spread between the largest Russell 1000 index constituent’s market cap, Apple with $3.12 trillion, and the smallest constituent in Russell 2000 at $119.4 million widened for the 2025 reconstitution when compared to a year ago. In 2024, the largest constituent (Microsoft) stood at $2.89 trillion while the smallest came in at $150.4 million. The breakpoint between the two segments remained the same at $4.6 billion (see Exhibit 8).
Exhibit 8: Market cap spread between large and small
The widening of the market capitalization spread, even as the breakpoint remains constant, highlights the higher relative concentration in the large-cap space.
The future of Russell Reconstitution
FTSE Russell announced in January 2025 that the reconstitution of the Russell U.S. indices will take place semi-annually in June and November starting in 2026. This change enables market participants to capture any changes in U.S. equity market dynamics more frequently.
At the same time, biannual rebalancing means market participants need capital-efficient, liquid and operationally effective tools to seamlessly implement index turnover. Futures can be effective instruments in replicating index performance as they minimize costs and slippages while maintaining exposure to the underlying index.
Conclusion
With over USD $10 trillion in benchmarked and replicated assets, the Russell U.S equity indices reconstitution is a highly anticipated market event as a significant amount of capital changes hands. The event presents potential risks as well as opportunities for market participants. The Russell Equity futures complex, along with trade execution functionalities such as BTIC, offers investors cost-effective and operationally seamless way to reflect the changing U.S. equity landscape.
References
- LSEG press release
- All BTIC transactions must be executed in accordance with CME Rule 524.B. (“Basis Trade at Index Close (“BTIC”) Transactions”).
- All such EFPs must be executed in accordance with CME Rule 538 (“Exchange for Related Position Transactions”)
Trading Equities
Equity Index futures and options provide the deep liquidity investors need.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
