Russell Indexes Plan to Revise Growth/Value Classification Rules, Allowing Deviation from 50/50 Split
nashnova research
FTSE Russell proposed scrapping the nearly four-decade-old 50/50 market-cap split between growth and value stocks, allowing either side to reach 60% — a direct response to Big Tech's ballooning share of index weight.
The 50/50 rule lasted almost 40 years — why change it now?
The Russell 1000 and Russell 2000 have long split constituents into growth and value at a strict 50/50 market-cap ratio.
The problem: mega-cap tech stocks are so large and so growth-oriented that they fill the 50% growth quota entirely. This means → many companies with clear growth traits are forced into the value bucket, and the index no longer reflects the market it tracks.
In plain terms = imagine a classroom with 50 "growth" seats but 70 growth students — the extra 20 end up sitting on the "value" side, and the seating chart stops making sense.
What exactly does the new proposal do?
FTSE Russell introduces a mechanism it calls a "diversification factor": when a handful of stocks concentrate enough to materially distort index representativeness, the growth or value weight may deviate from 50%.
The cap is 10 percentage points — one side can reach 60% at most, the other drops to 40%. FTSE Russell stresses this is a ceiling, not a target.
This reflects an attempt to balance rule stability against market reality — loosening the frame rather than scrapping it.
The definition of "value" is changing too — what metric says a stock is cheap?
The traditional yardstick is book value / price (B/P). But many modern companies hold their core assets in brands, patents, and algorithms — none of which show up on the balance sheet.
This means → under B/P, a highly profitable but "asset-light" company looks expensive when it may not be.
FTSE Russell chose sales / price as a replacement or supplement to B/P — sales better capture actual operating performance, and the switch causes relatively little fund turnover.
What happens to the $8 trillion tracking these indexes?
FTSE Russell's growth and value style indexes tracked roughly $8 trillion in assets last year.
Any rule change forces passive funds benchmarked to these indexes to rebalance holdings — stocks shifting from value to growth, or vice versa, trigger real buy-and-sell flows.
The consultation closes December 11; if approved, changes take effect at the June 2027 annual reconstitution.
It's not just Russell — S&P is moving too. What does that signal?
S&P Dow Jones Indices is pursuing a parallel overhaul, with proposals to add intangible assets and free cash flow to value-stock criteria, though no final decision has been announced.
Two major index providers restructuring rules in tandem — this reflects a systemic reassessment of the growth/value classification framework itself.
MarketGrader founder Carlos Diez noted the changes could blur the line between growth and value: "This is a way of indirectly moving some growth companies into the value category." In plain terms = when the rules themselves are shifting, the most familiar binary in investing — "buy growth" or "buy value" — may no longer be as clear-cut as it once was.
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