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Beacon Equity Research

Russell 3000 Index

Overview

Started in 1984, the Russell 3000 Index attempts to capture the return of the overall market. The index can be subdivided into two segments: the Russell 1000 large-cap and Russell 2000 small-cap. The delineation is clear enough--the Russell 1000 represents the 1000 largest stocks in the index (based on market cap), while the remaining 2000 are placed in the Russell 2000. Because of its broad diversification and large number of holdings, this index often makes for a popular alternative to the Wilshire 5000 total market index.

Composition

The Russell 3000 Index is comprised of the 3000 largest and most liquid stocks based and traded in the U.S. The U.S.-based requirement disqualifies many large international firms from inclusion into the index--names such as Unilever, Schlumberger and Seagrams, just to name a few. The components of the Russell 3000 Index account for roughly 98% of the total value of all equity traded on U.S. exchanges, making this a very broad index indeed. The index is market-cap weighted, so the largest firms have the biggest impact on the index's value. As you can see from the tables below, the index's top 10 holdings are identical to those of the Russell 1000 index (which is simply a subset of this index). However, the overall weighting assigned to these top holdings is slightly lower when it comes to the Russell 3000 (due to its broader diversification).

The table below lists the current top ten holdings in the Russell 3000 Index:
CompanyTickerWeight (%)
General ElectricGE2.8%
Exxon MobilXOM2.3%
MicrosoftMSFT2.1%
PfizerPFE2.1%
CitigroupC1.9%
IntelINTC1.4%
Bank of AmericaBAC1.4%
Johnson & JohnsonJNJ1.3%
American Intl.AIG 1.3%
Cisco SystemsCSCO1.3%
This table shows the top ten sectors represented in the Russell 3000 Index:
Sector% of Index
Financial Services21.2%
Healthcare13.8%
Industrial Materials11.4%
Business Services10.9%
Hardware8.8%
Consumer Services8.6%
Consumer Goods6.2%
Software4.7%
Energy4.1%
Utilities3.2%

Positives

This index captures virtually the entire return posted by U.S.-based stocks. The more stringent requirements for inclusion also probably make it a better representation of the universe of actively traded stocks when compared to the Wilshire 5000.

Drawbacks

Most investors consider the Wilshire 5000 to be the benchmark for total market returns. Even if it includes stocks that are almost impossible to trade, that index contains more equities and thus gets more focus. Although the Russell 3000 gets little attention, its two subsets, the 1000 & 2000, are widely followed. After noticing that large indices consistently lag behind smaller, more focused ones, many investors are beginning to wonder if there is such a thing as "too much" diversification. Is it only a matter of time before someone launches a "world index" that contains all equities traded in every country and renders other total market indices obsolete?