NEW YORK - Investors are gearing up for the final reconstitution of the benchmark indexes by FTSE Russell on Friday, with the furious rally in artificial intelligence related stocks over the past year expected to leave an outsized imprint on their final shape.
Since last year's reconstitution, the furious rally in stocks seen as likely to benefit from AI, names such as Nvidia and Super Micro Computer, is expected to significantly impact Russell's growth and value indexes this year. The Russell 1000 growth index is expected to have about two-thirds of its components in just technology and communication services, said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments in Menomonee Falls, Wisconsin.Meanwhile, about 45 stocks are leaving the growth index, reducing the index to just over 390 names, compared to roughly 870 in the counterpart value index, VanCronkhite said.
Because the reconstitution is well telegraphed every year, it also creates additional demand for buying and selling stocks as some investors may see the additional liquidity as an opportunity to take advantage of any price dislocations that may result. "In theory, the increase in concentration from the rebalance would create buying pressure in these stocks, in practice, the impact should be mitigated by portfolio diversification rules," the UBS analysts said in the report to clients, noting this should increase tracking error among growth managers.
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