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Trading Surge Seen as S&P, Russell Make Changes in Covid Era

Joanna Ossinger
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Trading Surge Seen as S&P, Russell Make Changes in Covid Era

(Bloomberg) -- Investors are bracing for a surge in trading volumes as trillions of dollars benchmarked to S&P and Russell indexes adjust their weightings when the U.S. gauges rebalance members in coming days.

In the Covid-19 era, the revisions will be even more closely watched. Not only have markets moved significantly in recent months, making some index changes more sizable than they might be in other years. S&P also delayed the quarterly rebalancing originally scheduled for March due to volatility, making for higher expected turnover this time around.

“It’s almost like two rebalances in one,” said Gerry O’Reilly, a portfolio manager at Vanguard Group. “The turnover for each of the different sectors in S&P, each of the different market caps, it’s a little larger than it has been in the past,” and about $54 billion in total trading around the event is expected, he said.

On June 26, it’s the Russell reconstitution, which Bank of America has already said is likely to be a record-breaker. Net trading could be around $65 billion, most of which will take place in the final minutes of trading that day, Keefe Bruyette & Woods’s Melissa Roberts said in a note June 14.

Rebalances often fuel high-volume stock-trading days in the U.S., as investments that track the indexes buy and sell to mimic the benchmarks.

Because bigger companies are getting bigger and the declines in the values of small companies is steeper, the smallest components of the Russell 1000 and 2000 indexes will have lower market capitalizations than previously, Catherine Yoshimoto of FTSE Russell said.

The Russell 2000’s smallest component is under $100 million for the first time since 2009, she said in an interview on June 15. In terms of notable style changes, Cisco Systems Inc. is being classified entirely as Value from Growth, and Alphabet Inc. is being moved from 100% Growth to partially Value, she said.

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