What Is the Russell 3000 Value Index?
Russell 3000 Value Index is a market-capitalization weighted equity index maintained by the Russell Investment Group and based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform by including only value stocks.
Included in the Russell 3000 Value Index are stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. This value index can be contrasted with the Russell 3000 Growth Index.
- The Russell 3000 Value Index is composed of companies from the broad-based Russell 3000 index that are considered to be value stocks.
- Value stocks trade at generally lower prices relative to fundamentals, and tend to pay higher dividends, making them attractive to value investors.
- The index is evaluated and re-constituted annually in order to preserve its mandate of listing value stocks.
Understanding the Russell 3000 Value Index
The Russell 3000 Value Index is based on the Russell 3000 Index, which measures the performance of the 3,000 largest publicly held companies incorporated in America, as defined by total market capitalization.
Segmenting the US market by size and style is a useful analytical tool for investors who want to understand high level trends in market performance, portfolio exposures, and fees. If an investor wants to put their money into stocks that exhibit broad growth and value characteristics, the Russell 3000 Value Index provides a simple way to view these market segments.
First launched on July 1, 1995, the companies in the Russell 3000 Value Index are selected based on float-adjusted market capitalization. On the last trading day of May, FSTE Russell ranks eligible companies based on their total market capitalization values. On the final Friday of June, the index is reconstituted. To be eligible for inclusion in a U.S. equity market index, the securities must trade on the NYSE, NYSE MKT, NASDAQ, or ARCA exchanges. The performance of the Russell 3000 Value Index can be monitored via the iShares Core U.S. Value ETF symbol IUSV.
A value stock is a security trading at a lower price than what the company’s performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company’s performance.
Common characteristics of value stocks include high dividend yield, low price-to-book ratio (P/B ratio), and/or a low price-to-earnings ratio (P/E ratio). Investors can find value stocks using the "Dogs of the Dow" investing strategy by purchasing the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting the portfolio every year thereafter.
In contrast to value stocks, growth stocks are equities of companies with strong anticipated growth potential.
The Russell Indices
It represents approximately 98% of the American public equity market. As of January 31, 2021, the stocks of the Russell 3000 Index have a weighted average market capitalization of around $125 billion; the median market capitalization is at $2 billion. The index, which was launched on January 1, 1984, is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.
The Russell 3000 Index is further broken down into the Russell 1000 Index and the Russell 2000 Index. To assign growth and value weights within the Russell 3000 Index, the Russell Investment Group ranks the stocks within the Russell 1000 and 2000 Indexes, respectively. Stocks are ranked by their book-to-price (B/P) ratio and their forecast long-term growth mean according to the Institutional Brokers' Estimate System (IBES).
Once ranked, the Russell Investment Group uses a non-linear probability method to separate stocks into the growth and value styles. In general, a stock with a higher ranking is considered value, and a stock with a lower ranking is considered growth. Stocks in between have both growth and value features.