Mortgage and real estate industry-related firms will be active in the annual reconstitution of the Russell Investments equity indexes, taking place after the close of markets Friday.
Mortgage loan origination system provider Ellie Mae, which completed its initial public offering of stock in April, is slated for addition to the Russell Global Index.
In addition, real estate investment trusts will experience an increase in their weighting in the Russell 2000 growth index and a reduction in their weighting in the Russell 2000 value index, according to a research note by Credit Suisse.
Each year, Russell Investments reviews the public companies listed in its global and Russell 3000 equity index, which subsequently trickle down and impact its related subindexes. Ellie Mae was one of 22 companies that recently went public in the group of 186 additions.
After the reconstitution, the combined market capitalization of stocks in the Russell 3000, which reflects about 98% of the investable U.S. equity universe, will increase from $13.4 trillion as of May 31, 2010, to $16.7 trillion as of May 31, 2011, according to a Russell Investments press statement. The median market capitalization will increase by 23.0% from $802 million in 2010 to $1.04 billion.
“We see the addition to the Russell Global Index as a reflection of Ellie Mae’s positive momentum, while the inclusion in the index marks yet another milestone for the company,” Sig Anderman, president and CEO of Ellie Mae, said in a press release.
According to analysts at Credit Suisse, the weight of REITs in the Russell 2000 growth index will increase to 3.9% from 1.7% and decrease to 12.5% from 15.3% in the weighting of the Russell 2000 value index.
“At the same time that REITs’ weights are rising in the growth indices, they are falling in the value indices, making it unclear how movement between the growth and value categories influences performance,” wrote lead analyst Andrew Rosivach. “But classification can affect what growth or value managers perceive as being in their investable universe.”
The increase in the percentage of individual REIT shares assigned to the 2000 growth index ranks the REIT industry sixth highest.
“While we understand that REITs aren’t inherently high growth, they will be a big enough presence in the growth indices such that if they outperform strongly, a growth manager may be hurt by a lack of exposure,” Rosivach wrote.
Despite the declined weighting in the value index, the REIT sector is still the heaviest weighted sector in that index, followed by the commercial bank industry, whose shares account for about 10.8% of the value index.
When the changes take effect, Mid-America Apartment Communities will be the heaviest weighted REIT in the growth index, representing 0.41% of the index, up from the current 0.24%.
A number of community and regional banks active in mortgage lending and some REITs were also removed from the Russell indexes as part of the annual review.
