What Is the Russell Top 200 Index?
The Russell 3000 is a capitalization-weighted stock market index. Its aim is to be the barometer of the entire U.S. stock market. The Russell Top 200 Index is an index of the largest 200 companies in the Russell 3000 index. It is commonly used as a benchmark index for U.S.-based ultra large-cap (mega-cap) stocks with the average member commanding a market capitalization of upwards of $200 billion.
- The Russell Top 200 index is a U.S. mega-cap equity index published by FTSE Russell.
- The index is composed of the 200 largest companies out the 3000 total companies in the Russell market index.
- The Top 200 is used as an ultra-large cap benchmark index and competes with the S&P 500 and Dow 30.
Understanding the Russell Top 200 Index
The Russell Top 200 Index is a more concentrated version of the S&P 500, but many of the Russell 200 members are also listed on the larger benchmark. With market conditions favoring larger stocks in recent years, the Russell Top 200 Index now represents about two thirds of total market capitalization of all US-listed stocks.
A significant portion of the underlying index is represented by companies in the financial services, consumer discretionary, healthcare, and technology sectors. Technology's weighting in the index has steadily increased over the past decade as many companies look to bolster business operations with cutting-edge technology. Sure enough, the biggest holdings consist of some tech giants like Apple (AAPL), Facebook (FB) and Microsoft (MSFT). Today, the average market capitalization of stocks listed in the index stands at $236 billion thanks to the extended rally in equities.
Each year the FTSE Russell reconstitutes the index to exclude companies that no longer meet the minimum criteria or account for growing ones that require inclusion. The index itself is found under the symbol RT200, but often trades through various exchange-traded funds. The most popular exchange-traded fund in the Russell 200 Index is the iShares Russell Top 200 Index, released in September 2009.
Advantages of the Russell Top 200 Index
Investing in ultra large-cap stocks offers a number of advantages that are unavailable in smaller companies. For one thing, large companies generate consistent returns with far less volatility than a company just getting started. They control diverse business channels which means specific revenue streams can compensate for the other ones in trying times.
In addition, the companies often have a track record of paying dividends or repurchasing shares, offering investors with a steady stream of income. For the Russell Top 200, investors can expect the same level of consistency and stability found by many of its constituents.
Mega-cap stocks often wield significant influence in different industries due to size and volume of goods and services sold during a given time period. Apple, for instance, holds a market cap of more than $800 billion owing to continued strength in iPhone sales, whereas Amazon reached new highs on the success of retail operations and web services. Today, there are about 10 companies traded in the U.S that hold capitalizations over $300 billion, most of them now operating in the technology sector. In the past, blue-chip companies such as ExxonMobil (XOM) and General Electric (GE) held most of these seats as investors trusted them to deliver consistent dividend payments and steady returns.
Limitations of the Russell Top 200 Index
The primary disadvantage of investing in a mature company or index that tracks them is the limited upside growth potential compared to an upstart. Small companies introduce new technology and products at a much faster pace. This often translates into substantial gains in the stock market. A large company simply can't innovate at the same pace as a small one as a result of lengthy approval processes through multiple layers of governance. Therefore, shares are traded for value or income qualities rather than growth potential.