Russell 2000 Rebalancing Trading Strategy (Backtest and Analysis)

Russell 2000 rebalancing at the end of June is an important event. It’s important because it leads to potential imbalances, but more importantly, the Russell 2000 has shown abnormal outperformance over these few days. The seasonality and effect are so strong it seems to be a tradeable Russell 2000 rebalancing trading strategy.

In this article, we test how the Russell 2000 rebalancing at the end of June leads to a rally in the last few days of June. It turns out the seasonality is for real. Our result suggests the Russell 2000 performs much better at the end of June than any other period of the year. We present a Russell 2000 rebalancing strategy based on the imbalances and effects.

What is the Russell 2000 Index?

As the name implies the index has 2 000 stocks included. It’s regarded as a small-cap index. The reason for that is that Russell 2000 is a subset of the smallest companies in the Russell 3000 Index which tracks the largest 3000 public companies. Russell 2000 is a market-weighted index. The ticker for the index is RUT, the ETF has the ticker IWM, and the futures contract is RTY.

The name Russell is a result of the Frank Russell Company that established the Russell indices back in 1984. It’s now owned by FTSE Russell, a UK company.

Despite having 2000 companies included, the index has just 10% of the overall US market capitalization. Thus it’s being used as a small-cap gauge of the market.

Russell 2000 components

The ten biggest holdings are currently these: OVV, AR, CHK, SWN, BJ, RRC, PDCE, BHVN, WSC, and MTDR.

When does the Russell 2000 rebalance?

Every year on the fourth Friday of June, the Russell 1000, Russell 2000, Russell 3000 and other Russell indexes are reconstituted. (FTSE Russell gives investors a heads up about what moves they should expect.)

Russell 2000 rebalances their holdings once per year on the fourth Friday of June. The date of the fourth Friday varies, obviously, so traders are advised to look at Russell’s website to find out when.

What does Russell 2000 rebalancing mean?

Russell 2000 rebalances their holdings at the end of June every year. Here is what they said about rebalancing some years ago: