Meta Platforms is poised to become a “value” stock in Russell’s reshuffle this month, says Jefferies

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Facebook parent Meta Platforms Inc., whose shares have fallen over the past year, is expected to become a value stock on preliminary data for the rebalancing of the US Russell Stock Indices later this month, according to Jefferies.

According to preliminary results released by FTSE Russell on Friday, a “good chunk” of Meta’s shares will move to the Russell 1000 Value Index RLV,
+0.22%
of the Russell 1000 Growth Index RLG,
+0.42%,
a Jefferies research report dated June 5 shows this. Meta is on track to become 1.8% of the Russell 1000 Value Index after the rebalancing, which is expected to take place after the US stock market closes on June 24.

Meta also fell from the top five companies during this year’s rebalancing, according to FTSE Russell’s June 3 statement. “For the first time since 2019, the five largest companies in the Russell US indices have changed,” with Tesla Inc. TSLA,
+1.60%
replacing Meta as the fifth-largest company based on market value on so-called ranking day, which was May 6, the index provider said.

Ranking day is when FTSE Russell launched its annual rebalancing process for its US Russell indices.

As part of the redesign, Google parent Alphabet Inc. GOOGL,
+1.99%

GOOG,
+2.14%
has overtaken Amazon.com Inc. AMZN,
+1.99%
to become the third-largest company, pushing Amazon to fourth by market capitalization in the Russell 3000 and Russell 1000 indices. Apple Inc. AAPL,
+0.52%
retained its position as the largest company while Microsoft Corp. MSFT,
-0.47%
remained the second largest, each with a market value exceeding $2 trillion, according to the FTSE Russell statement.

While it was the first time the rebalancing showed multiple companies surpassing a market capitalization of $2 trillion, the U.S. stock market overall shrank in size, the statement said. The market capitalization of the broad Russell 3000 index fell 5.9% to $44.9 trillion on the day of the ranking, from $47.7 trillion during last year’s rebalancing.

ANNOUNCEMENT BY FTSE RUSSELL ON JUNE 3, 2022


Meta FB Shares,
+1.82%
have fallen about 42% this year through Monday and are down about 41% in the past 12 months, according to FactSet data. The company, which is part of the communications services industry, had a market value of around $516 billion on June 3, according to FactSet data.

Lily: Sheryl Sandberg leaves Facebook after 14 years

Also see: Facebook parent company Meta Platforms will change stock symbol to META on June 9

As part of this year’s Russell rebalancing, “style factors have been determined” based on May 31 data, which will have a general impact on trading “value” stocks versus “growth” stocks. , Steven DeSanctis, equity strategist at Jefferies, said in a phone call. interview Monday. “What ends up performing well tends to move on to growth; what tends to lag moves into value,” he said of the annual rebalancing process.

Many “long-only” managers are benchmarked to indices, so they pay attention to changes in their sector weightings, said DeSanctis, who led the Jefferies report.

For example, Jefferies highlighted “big sector shifts” in the Russell 2000 Value Index RUJ,
+0.60%,
where energy is expected to see its weighting drop by 5.8 percentage points to 6%. In contrast, energy is expected to feature more prominently in the new Russell 2000 RUO Growth Index,
+0.08%,
with its weight jumping 3.1 percentage points to 7.5%, according to the Jefferies report.

Growth managers will need to pay attention to energy, having not had to worry about the sector for the past two years, DeSanctis said.

Meanwhile, six of the 21 companies slated to move through the rebalancing process from the large-cap-focused Russell 1000 Index to the small-cap-focused Russell 2000 Index are in energy. They include Antero Resources Corp. AR,
+2.82%,
Chesapeake Energy Corp. CHK,
+0.97%,
Ovintiv Inc. OVV,
+2.78%,
PDC Energy Inc.PDCE,
+0.56%,
Range Resources Corp. DRR,
+2.44%
and Southwestern Energy Co. SWN,
+2.08%,
according to the FTSE Russell statement.

“Energy is the industry that stands out this year, leading other industries in terms of index performance and the number of companies moving from the Russell 2000 Index to the Russell 1000 Index,” said Catherine Yoshimoto. , Director of Product Management at FTSE Russell for the US Russell Indices. , in the statement.

In another shift among large-cap stocks, the health care sector is expected to have a larger weight in the Russell 1000 Growth Index, like UnitedHealth Group UNH,
+0.94%
should become 2.2% of the rebalanced index, according to the Jefferies report.

The annual rebalancing process redefines “breakpoints” between large, mid, small and micro-cap stocks on ranking day “to ensure market changes over the past year are captured”, said FTSE Russell.

For example, the market values ​​of companies in the small-cap-focused Russell 2000 Index ranged from $234 million to $6.4 billion based on May 6 stock prices, according to the Jefferies report. The market capitalization of companies in the Russell 1000, which consists of large-cap stocks, ranged from $2.9 billion to $2.58 trillion as of the May 6 deadline.

“Each June, the US Russell family of indices is recalibrated to accurately reflect the current state of the US stock market,” said FTSE Russell. Ahead of the June 24 rebalancing, the index provider said updates to its preliminary listings will be posted on its website at market close on June 10 and 17.

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