Editor's note: One of the most important trading days of the year is fast approaching...
If you've been following our work for a while, you might be familiar with "reconstitution day." Every June, the Russell 2000 releases a list of tiny stocks getting added to the index... and the ones getting dropped.
It's a huge deal in the world of investing. With so much money flowing around, "reconstitution day" can make or break a stock.
And it can make or break a portfolio, too.
In today's Altimetry Daily Authority, we're bringing back an old favorite essay to explain exactly how the Russell indexes got started... and why you'd be wise not to overlook the "best of the best" small-cap stocks...
George Russell only wanted to make his grandfather proud...
He didn't plan to change the entire investing industry.
George started working at his grandfather's business, Frank Russell Company, in 1958. Although it had been around for more than two decades, it was still pretty much a one-man show.
Frank Russell was a retired Wall Street stockbroker just looking to keep busy. So he worked with a handful of local clients.
George joined the team after graduating from Harvard Business School. But he didn't have much time to adjust. Three months later, his grandfather died... and George found himself at the helm.
The company he helped build now manages nearly $400 billion in assets under management.
And as you'll see, he transformed all of Wall Street in the process...
During George's first decade leading the business, pension funds were booming...
Companies would invest money on behalf of their employees so they'd be set for retirement. There was a problem, though... A lot of funds struggled to pick good investments.
None of these pensioners knew what they were looking at. Pension funds had a tough time getting good data on their investments. Their managers and brokers would all come up with different numbers.
And that made measuring performance a hassle.
George created the Portfolio Activity Report ("PAR"), the gold standard for measuring pension performance.
The report tracked a fund's holdings, buys, and sells. It was a crucial single source of information for fund managers.
George and the team soon realized there was a lot of demand for a stock data "one-stop shop." So the company began building indexes that tracked stock performance uniformly. Pension funds could use the data to make better investment decisions.
Even back in the 1980s, pension funds weren't satisfied with doing well...
They wanted to beat the S&P 500. To do that, investors had to look outside the S&P 500.
So the Russell team took all the companies it could track – about 3,000 in total – and turned that data into its own index.
Most folks these days are familiar with the Russell indexes. The Russell 3000 is still pretty much the definitive universe of investible U.S. companies.
George and the team broke that up into two smaller indexes. They expected the Russell 1000 to be the more popular one. Since it holds the 1,000 largest publicly listed U.S. stocks, it's closer to the S&P 500.
But to their surprise, the Russell 2000 became the crowd favorite.
Investors loved this list of smaller, less-covered stocks. Folks realized that while these stocks were small, they could soon grow to be in the Russell 1000... or even the S&P 500.
It gave them a chance to buy in earlier than ever.
It's still a huge deal for stocks to join the Russell 2000...
They gain legitimacy, meaning a lot more investors can start buying in.
In fact, many institutional funds are required to buy what's in the Russell. It's the best way to track the index's performance.
And since investors are starting much closer to the ground floor... there's a lot more room for shares to run.
The S&P 500, the Nasdaq, and the Dow are still the world's most popular stock indexes. But the Russell provides some of the best investment-universe data out there.
If you're looking for some great hidden gems, start your search in the Russell 2000. Plenty of the smallest stocks are just waiting to grow into the larger indexes.
Regards,
Joel Litman
April 15, 2026
P.S. The annual Russell Rebalance is fast approaching. On a single day in June, hundreds of stocks will join the index. Hundreds more will be cut.
But the fun starts months earlier... on April 30.
It's known as "rank day" – when the folks at FTSE Russell release the preliminary lists for addition and deletion from the Russell 2000. Stocks will pop (and plunge) on the news.
For folks who get a head start, rank day can be one of the most important days of the year. Bloomberg calls it "one of the most reliable strategies this century."
Learn how to find the likely winners right here.
