FTSE Russell

FTSE Russell is a world-leading provider of financial market indexes, owned by the London Stock Exchange Group (LSEG). Think of it as a master scorekeeper for the financial world. An index is simply a curated list of stocks, bonds, or other assets, designed to represent the performance of a particular market segment—like the UK's largest companies or America's smaller businesses. FTSE Russell creates and maintains thousands of these indexes, which are the blueprints for countless investment products. Financial institutions pay FTSE Russell to use these indexes as the basis for their index funds and Exchange-Traded Funds (ETFs), or as a benchmark to measure their own performance against. For the everyday investor, FTSE Russell's work is the invisible engine behind many of the simple, low-cost funds that form the bedrock of a modern investment portfolio. They don't manage your money, but they draw the maps that many money managers follow.

At its core, FTSE Russell's job is to apply a clear, rules-based methodology to group securities together. These rules are public and transparent, determining which companies get into an index and which get kicked out. The most common criterion is market capitalization—the total value of a company's shares—but other factors like liquidity, free float (shares available for public trading), and country of domicile also play a role. They regularly 'rebalance' or 'reconstitute' their indexes (often quarterly or annually) to ensure they remain an accurate reflection of the market they're designed to track. This disciplined process makes their indexes reliable and trusted across the globe.

While FTSE Russell maintains thousands of indexes covering nearly every imaginable slice of the global market, two of their creations are household names for investors in the UK and the US.

Affectionately known as the 'Footsie', the FTSE 100 Index is the headline act in the UK. It tracks the 100 largest public companies listed on the London Stock Exchange, ranked by market capitalization. When you hear a news report say 'The market in London was up today,' they are almost always referring to the FTSE 100. It's a who's who of British and multinational corporate giants, including famous names in banking, energy, and consumer goods. While it's seen as a barometer for the health of the UK economy, it's important to remember that many of its constituent companies earn a huge chunk of their revenue overseas, making it a truly global index.

Across the pond in the US, the Russell 2000 Index is the most widely followed benchmark for small-cap stocks. It comprises the 2,000 smallest companies from the much broader Russell 3000 Index (which tracks the 3,000 largest US stocks). These aren't the tiny, garage-based startups you might imagine; they are substantial businesses, just not on the scale of giants like Apple or Microsoft. The Russell 2000 is often seen as a better gauge of the domestic US economy than the S&P 500, as smaller companies tend to be more focused on their home market. For investors looking for growth potential beyond the mega-corporations, this index is their playground.

While some disciples of value investing focus exclusively on picking individual stocks, FTSE Russell's work is profoundly relevant. Here's why:

• The Foundation of Low-Cost Investing: The core principle of value investing is not overpaying. FTSE Russell’s indexes are the backbone of passive investing through low-cost ETFs and index funds. Buying a fund that tracks the FTSE 100 or Russell 2000 is often a smart, cost-effective way to achieve broad market exposure, freeing you up to concentrate your deep dive research on a few select companies.
• The Ultimate Performance Benchmark: How do you know if your stock-picking skills are any good? You compare your portfolio's performance to a relevant benchmark. If you invest in US small-cap stocks, your hurdle is to beat the Russell 2000 over time. If you can't, it's a humbling sign that you might be better off just buying the index itself. As the saying goes, “If you can't beat 'em, join 'em.”
• A Hunting Ground for Ideas: Indexes are not just for passive investors. A value hunter can use an index like the Russell 2000 as a pre-screened list of potential investments. Furthermore, the annual or quarterly 'reconstitution' of an index can create opportunities. When a stock is kicked out of an index, index funds are forced to sell it, which can temporarily depress its price. This forced selling has nothing to do with the company's underlying value, potentially creating a bargain for a sharp-eyed investor.