What Is The Russell 3000 Growth Index?

The Russell 3000 Growth Index is a market capitalization-weighted index based on the Russell 3000 index. The Russell 3000 Growth Index includes companies that display signs of above-average growth. The index is used to provide a gauge of the performance of growth stocks in the United States.

Key Takeaways

  • The Russell 3000 Growth Index comprises of companies well-positioned for fast growth.
  • The Index sounds volatile due to their ideal company profile, but the Index's broad exposure to different sectors means it generally doesn't see enormous fluctuations.
  • The Russell 3000 Index represents both large-cap and small-cap growth companies.

Understanding the Russell 3000 Growth Index

Russell US Indexes are benchmarks that institutional investors follow closely. Six major types of institutional investors include endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies. These metrics allow this group of investors with access to extraordinary financial assets and the ability to invest large sums of money to track current and historical market performance by a particular size, investment style and a wide range of additional market characteristics. The major Russell 3000 Index also includes the large-cap Russell 1000 Index and small-cap Russell 2000 Index.

Companies within the Russell 3000 that exhibit higher price-to-book (P/B) and forecasted earnings are used to form the Russell 3000 Growth Index. Price-to-book compares a stock's current market value to its book value (generally calculated as total assets minus intangible assets, such as patents and goodwill, along with liabilities. This is also known as the "price-equity ratio."

Additional screens within the Russell 3000 Index include the Russell 1000 (top 1000 stocks in the Russell 3000) and the Russell 2000 Index (formed by the next tier of 1000 stocks).

Pink sheets, bulletin board stocks, foreign stocks, or American Depository Receipts (ADRs) are excluded from all three of these indexes. These securities often trade with less liquidity and with a low enough volume that it is difficult for investors with parameters to invest only above a certain amount to get into these markets.

For example, while a particular over-the-counter or OTC security may be of some interest to certain endowments, the endowment policy may prohibit the endowment managers from investing below a certain dollar threshold in securities that trade below a certain number of shares per day on average. Such securities often pose more risk.

Russell 3000 Growth Index and Growth Stocks

Examples of growth stocks that could comprise the Russell 3000 Growth Index include technology companies. These fast-growing firms (often startups) do not always pay a dividend, given that management usually opts to reinvest retained earnings in capital projects. For this reason, growth investors choose growth stocks based on the potential for capital gains, not dividend income.

Another common example is biotech companies. They will typically either explode upwards or fail outright, but their trajectory and business size positions them as a good candidate for growth.