By Evie Liu
FTSE Russell is expected to announce the initial list of additions and deletions on Friday for its indexes' coming reconstitution. Analysts say the 2026 reconstitution is poised to make the small-cap Russell 2000 index a higher-yielding and slightly less volatile index.
J.P. Morgan analyst Bram Kaplan estimates that 16.4% of the Russell 2000's market value will move into the Russell 1000 during the reconstitution. Most of the companies moving up to the Russell 1000 pay little or no dividends, he wrote, with average dividend yields below 0.1%.
Once those companies leave the Russell 2000, the remaining dividend-paying stocks will make up a larger share of the index, wrote the analyst. Kaplan estimates that annual dividends for the Russell 2000 will rise about 16% after the rebalance.
The stocks leaving the Russell 2000 also tend to be much more volatile than the rest of the index, with an average one-month realized volatility of 83%, compared with 54% for the overall index. Their removal is expected to lower the Russell 2000's realized volatility by about two percentage points, according to Kaplan.
In March, Jefferies analysts looked into Russell 2000 rebalancing trends going back to 1997, studying stocks added to and removed from the index and tracking how they performed before and after the annual reshuffle.
The study found out that stocks moving up into the Russell 1000 performed strongly ahead of the rebalance, gaining nearly 10% during the second quarter on average. The momentum often continues through the summer and fall, with average 12-month returns reaching 18.3%, outperforming the Russell 2000 index by 6.6 percentage points.
By contrast, stocks kicked out of the Russell 2000 suffered heavy selling pressure partially due to fund outflow pressure, falling 7.6% during the period. But those beaten-down stocks often rebounded the following year, generating average 12-month returns of 16.1%, slightly above the Russell 2000 benchmark.
The 2026 Russell reconstitution follows a detailed schedule. Market-cap rankings that determine index membership are set using closing prices on April 30. Russell will release a preliminary list after the market closes on May 22, which will be updated weekly and finalized on June 17. The actual reconstitution trade happens after the market closes on June 26.
Write to Evie Liu at evie.liu@barrons.com
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(END) Dow Jones Newswires
May 22, 2026 15:41 ET (19:41 GMT)
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