Index provider FTSE Russell is about to switch codes after U.S. stock markets close on Friday, adding or removing some companies, affecting the deployment of nearly $12 trillion in funds, including large ETFs that passively track indexes.
According to Russell’s definition, the stock style is generally divided into growth or value, depending on the stock’s price-to-book ratio (PB ratio), two-year earnings growth expectations, and revenue growth over the past five years to determine the stock’s style.
The 13-year-long bull market in tech stocks has made growth stocks popular, while value stocks have been dubbed “waste stocks.” However, this year’s rate hike cycle has made many star stocks “obsolete”. Facebook (META), Netflix (NFLX), and Paypal (PYPL), whose stock prices have fallen by at least half during the year, are expected to be included in the ranks of value stocks.
According to the traditional definition of more value, the more flat, the three forecasted price-earnings ratios are lower than the market.
S&P 500: 16.1 times forward earnings
Paypal: 15.3 times forward earnings
Netflix: 14.8 times forward earnings
META: 11.1 times forward earnings
In the end, the above three will be significantly reduced in the Russell 1000 growth index, and the actual ratio has yet to be officially announced. Passive funds are expected to see large volumes in the final trading session on Friday, as they ensure accurate index tracking.
At the same time, the index ratio is distributed according to the company’s market value. After the META falls, Tesla Fisherman will benefit, becoming the fifth largest company in the Russell Index, and will receive funds to buy.
The Wall Street Journal quoted the head of iShare ETF as saying that taking META as an example, it used to account for 2.3% of its growth ETF (IWF) to 0.5%. However, at the same time, it will be bought by value ETF (IWD), the proportion will reach 1.7%, and there may not be a large sell-off phenomenon.
The reshuffle now also includes an increase in the energy sector’s share of growth ETFs from 0.6% to 1.5%.
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