Index funds make up a substantial percentage of the daily trading in the stock market. The S&P 500 ETF (SPY) , DJIA ETF (DIA) , and Nasdaq 100 (QQQ) trade billions of dollars each day, and every time any of the indices add or delete a stock, the funds must also buy or sell the stock. This can create some large moves for the stocks involved and can be an interesting source of volatility for traders.
At the close on June 25, 2021, the Russell indices will be rebalanced. This involves the Russell 1000, the Russell 2000, the Russell microcap index, and several others. Thousands of stocks are impacted by what Russell calls its 'reconstitution.' Typically the day on which the reconstitution is down is one of the highest volume days of the year as a slew of huge blocks are transferred to various index funds.
The preliminary list of the stocks that will be added and deleted to the Russell indices was released at the close on Friday, June 4, 2021. The list will be updated on June 11 and June 18 before becoming final on June 25.
Since funds have to buy quite a few shares in the stocks being added to the indices, it would seem like a good trading opportunity to buy in front of the big funds and then sell quickly when they drive the prices up. Of course, nothing in the stock market is that easy. The funds use a variety of complex strategies to make sure they end up holding the right stocks at the right price when the index change is finalized.
I have found that the last of stocks that are being added to the Russell indices can make for a good shopping list in the three weeks leading up to the final rebalancing. There are approximately 255 stocks being added to the Russell 3000. Currently, about 210 are trading up, and 45 are trading down. That is far better breadth than the overall market, which is running around 4600 gainers to 3225 decliners.
The biggest gainers on the list of Russell additions are Atossa Therapeutics (ATOS) , Clover Health (CLOV) , Bionano Genomics (BNGO) , Riley Exploration Permian (REPX) , Gevo (GEVO) , Trillium Therapeutics (TRIL) , Arcimoto (FUV) , and Mind Medicine (MNMD) , which are all up more than 15% currently.
In the weeks ahead, there is likely to be unusual increases in volume in a number of the stocks that are being added to the Russell 3000. There is no way to know what might happen or exactly how the stock will trade at the closing on June 25 but what we do know is that someone big is going to have to buy shares, and they will likely have some impact on the trading.
I'll be discussing various names that are being added, but here is a complete list of the additions to the Russell 3000.
