FTSE Russell is considering a major overhaul of its US growth and value indices, as the increasing dominance of a handful of technology giants threatens to undermine the distinction between the two investment styles.
Since their introduction in 1987, the Russell indices have divided the market capitalisation of their parent indices equally between growth and value stocks. However, the enormous size of companies such as Nvidia and Microsoft means that maintaining this 50/50 split increasingly forces businesses with growth characteristics into value indices. According to FTSE Russell, the number of companies classified as growth stocks in the Russell 1000 has fallen from approximately 626 in 2007 to just 368 in 2026. Its analysis suggests that, without the existing constraint, growth stocks would account for around 74% of the Russell 1000’s market capitalisation, rather than 50%.
FTSE Russell is proposing a more modest adjustment, allowing the allocation between growth and value to move as far as 60/40 during periods of unusually high market concentration. A historical simulation using the proposed methodology produced a 57% weighting towards growth at the June 2026 index review.
The index provider is also proposing changes to how it identifies value stocks, adding sales-to-price alongside the existing book-to-price measure. The aim is to better capture the valuations of businesses whose value increasingly lies in intangible assets, such as technology and intellectual property, rather than physical assets.
FTSE Russell estimates that combining the proposed changes would result in 97 additional companies gaining exposure in the Russell 1000 Growth Index.
The changes would have implications for European investors, with UCITS ETFs such as the iShares Russell 1000 Growth UCITS ETF (R1GR) and Vanguard Russell 1000 U.S. Growth UCITS ETF (VRGU) tracking benchmarks based on Russell’s classifications.
The consultation runs until 11 December 2026, with any changes subject to approval.
Our view
David Batchelor, senior analyst at QuotedData, said: “It says something about the extraordinary concentration of the US stock market that one of the world’s largest index providers is considering changing a methodology that has been in place for almost 40 years. The dominance of a handful of technology companies has become so pronounced that it is distorting not just market indices themselves, but the way other companies are classified. For investors using value ETFs to diversify away from expensive growth businesses, this raises questions about whether their chosen exposure is quite what they expected. The proposed changes are another reminder that investors should look beyond an ETF’s name and headline charges to understand precisely what they are buying”.
