By Evie Liu

FTSE Russell just announced the initial list of additions and deletions on Friday for its indexes' coming reconstitution -- which analysts have said could make the small-cap Russell 2000 index a higher-yielding and slightly less volatile index.

FTSE Russell said the market-cap cutoff between the Russell 1000 and Russell 2000 rose 24% this year to $5.7 billion, reflecting broad gains across the U.S. market.

According to FTSE Russell, 62 companies are set to join the large-cap Russell 1000 index. Of those, 43 are graduating from the Russell 2000, along with four companies that recently held IPOs, plus 15 companies entering the Russell universe for the first time. Technology and industrials accounted for the largest share of new Russell 1000 members, with 18 additions from each sector.

Meanwhile, 237 companies are expected to join the Russell 2000, including companies dropping down from the Russell 1000, moving up from the Russell Microcap Index, and companies that recently held IPOs.

In a note earlier this month, J.P. Morgan analyst Bram Kaplan estimated 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 at the time, 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, the analyst predicted. Kaplan estimated that annual dividends for the Russell 2000 will rise about 16% after the rebalance.

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 of the calendar year 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, the analysts found.

By contrast, stocks kicked out of the Russell 2000 suffered heavy selling pressure that was partially due to fund outflow pressure, falling 7.6% during the period, according to the Jefferies team. 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.

After posting its preliminary list on Friday, Russell will update its changes weekly before the list is finalized on June 18. 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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May 22, 2026 20:18 ET (00:18 GMT)

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