With Rank Day only a few weeks away, have you prepared your IR plan?


The rebalancing of the FTSE Russell Indexes becomes a hot topic of conversation during the second calendar quarter of each year.  This year’s rebalancing will occur at the close of trading on June 28.  The reweighting of stocks by market cap to reconstitute these well-followed benchmarks impacts the trading activity of companies of all sizes, and we’ve increasingly seen hedge funds, arbitrageurs, and other event-driven investment firms front-run these anticipated changes months before the reconstitution goes into effect.  For quick background:

  • There are three core indexes. The largest is the Russell 3000 (“R3K”), which covers the largest 3,000 public companies listed on major U.S. exchanges.  That group of 3,000 companies is then broken down further into the Russell 1000 (“R1K”) covering the largest 1,000 companies and the Russell 2000 (“R2K”) covering the smallest 2,000 companies.
  • These indexes exclude partnerships/LLCs, BDCs, royalty trusts, blank check companies, OTC stocks, ETFs, mutual funds, and stocks trading below $1.00 on Rank Day.
  • This year’s Rank Day is Tuesday, April 30, when these 3,000 companies are ranked by market cap at the close of trading. The resulting three lists serve as the preliminary set of companies expected to be included in each of the core indexes after June 28.
  • From late May to June 28, the FTSE Russell team will regularly update those preliminary lists and communicate them to the marketplace to prepare the market for the coming rebalancing. Stocks of companies sold or merged will be removed, and new companies can be added to replace them. So, while the list isn’t 100% solidified on Rank Day, the vast majority of additions and deletions are firmly known as of April 30.
  • The image below provides a sense for the market cap ranges of these critical indexes over the last two years:



These indexes are widely followed and are often utilized as performance benchmarks by most investment funds and their managers.  Thus, if the market cap of your company’s stock has shifted dramatically over the last year, and you become a larger or smaller weighted component of one of these indices, you’ll see a sizeable shift in average daily trading volume throughout the year as many investors reconstitute their portfolios to mirror changes in the indexes.

One of the most speculated and front-run components of this reconstitution revolves around the R2K, which is largely considered THE proxy and benchmark for small-cap stocks.  Falling off or being added to the R2K can significantly change the institutional “investability” of many small-cap companies.

Based on our research team’s predictive analysis, we currently expect the R2K’s market cap floor in 2024 to be roughly $140 million.  While the stock market remains near all-time highs, the chart below shows the pressure that small-cap companies have been under the last few years as that lower bound for the R2K has declined for each of the last three years.



The Additions to the Russell 2000: Congrats

If your company’s stock has moved from micro-cap to small-cap levels, and it now has a market cap that is clearly above ~ $140 million, congratulations. You have a strong likelihood of being added to this critical index.  Your stock has likely already seen an increase in daily trading volumes as hedge funds and event players front-run your impending inclusion.  Looking forward, companies that get added to the R2K should expect:

  • A significant increase in daily volumes. Our research team estimates that small caps added to the R2K have historically seen, on average, more than a 25% increase in daily trading volumes over the next year.
  • Enhanced credibility and access to capital. Being part of a widely followed benchmark can enhance both a company’s credibility and reputation, and can potentially improve its ability to raise capital.
  • Increased institutional investor visibility. Inclusion in the R2K can increase a company’s visibility to institutional investors and index funds, potentially leading to improved research coverage and higher trading volumes.

The bottom line is that R2K additions see their “investability” increase dramatically.  These stocks are no longer considered “orphans.”  That said, this positive perception shift will only go so far in today’s market.  Small-cap stocks continue to struggle to retain sell-side analysts, and thus investor conference availability remains limited.

Thinking strategically about your IR partner and advisor is critical for the additions as they have a proactive opportunity to reshape their shareholder profile and convert targeted active shareholders into meaningful long-term holders.


The Deletions to the Russell 2000:  Don’t Let Your Stock Become an “Orphan”

If your company’s stock has seen significant valuation pressure over the last year and has fallen to micro-cap status below ~$140 million,  it unfortunately is at significant risk of being dropped from the R2K.  Additionally, your stock has likely seen an increase in daily trading volumes as hedge funds and event players front-run your impending exclusion.  Falling off the R2K brings significant selling pressure and often accelerates short interest over the next few months.  Looking forward, companies removed from the R2K should expect:

  • An observed decline in daily volumes in the second half of the year. Our research team estimates that small caps deleted from the R2K have seen, on average, greater than a 20% decrease on average in daily trading volumes over the next year post-rebalancing.
  • Reduced Wall Street exposure: Falling off this critical small-cap index reduces a company’s visibility to investors, potentially leading to lower liquidity and research coverage.
  • Institutional ownership loss: Companies will see a significant loss of passive (index, quantitative, and ETFs) holders who will be forced to sell due to the removal from the index. This is likely to produce a compounding effect as other active managers may also become concerned with lower float and pare-back positions, too.
  • Higher cost of capital: Being removed from an index can lead to higher borrowing costs and lower valuations, as the company may be perceived as riskier or less attractive to investors. This can limit growth opportunities due to reduced capacity for investment.

The takeaway is, if you’re removed from the R2K the “investability” of your stock will go down dramatically, and your Wall Street visibility will be impaired.  While you might not have prioritized the Investor Relations function previously, you’ll certainly need IR support over the next 12 months to enhance your visibility and to take more control of the dissemination of your investment thesis.


On the Border: Market Caps of $130-150 Million

If you stock is currently at a market cap that brackets the estimated cut-off, say between $130 million to $150 million, you should immediately start thinking proactively.  You’ll see speculation around first quarter earnings that could impact your valuation, and you have an opportunity right now to be proactive and support your stock price up to this critical April 30 Rank Day.

For example, last year we had a client whose valuation had accelerated close to what we were calculating as the likely bottom end of the R2K range.  In response, we came up with a press release and social media strategy (utilizing our PR team) that helped us continue to build the perception of growing momentum for the company.  We also timed a series of conference and non-deal roadshows in the spring to get the company on more investor radars.  This proactive initiative, coupled with strong fundamental results from the company, allowed the stock to hold its momentum and make the Additions List.  If your stock is currently on the market-cap border, we advise you to immediately take action to be more front footed with your IR strategy over the next 4-5 weeks.



Over the next few months, particularly the weeks of April 30 (Rank Day) and June 28 (list set on the market close), most stocks will see elevated volumes.  Companies near the dividing lines of all core indexes, especially those near the R2K-speculated cut-off, may see 4-5x their average trading volume during those weeks.

We also note that there’s been speculation as rebalancing may shift to twice a year starting next year.  Until then we’d encourage all IR teams to communicate internally with their management teams and boards ahead of these critical inflection points and high trading weeks. Further, if you’re a small-cap company being added, removed, or on the borderline, start thinking proactively about your IR program in the second half of 2024.  Our team of experienced investor relations and corporate branding professionals can help you navigate any of these changes and build a strategic IR plan to maximize your performance following the Russell rebalancing.

For more information on the Russell rebalancing, their website has a lot of great content here:  LINK.