GameStop Moves to Russell 1000; AMC Stays in Small-Cap Index
(Bloomberg) -- GameStop Corp. will join the FTSE Russell 1000 Index of large-capitalization stocks and AMC Entertainment Holdings Inc. will remain in the Russell 2000 after both companies saw billions of dollars added to their market values amid frenzied rallies this year.
GameStop will be transferred into the Russell 1000 and out of the Russell 2000 as part of FTSE’s annual reconstitution, according to a list released by the global index provider on Friday.
Due to the timing of a rally in its shares, AMC will remain in the Russell 2000 despite having a current market value of $27.8 billion, which is almost twice GameStop’s and more than nearly two-thirds of the companies in the Russell 1000. The newly balanced indexes will begin trading on Monday.
The odd arrangement is due to the timing of FTSE Russell’s cutoff for data used to determine which companies qualify for each index, which was May 7. At the time, the movie-theater chain owner was valued at $4.3 billion. Since then, however, the stock has attracted a cult-like following among meme stock investors, who have helped drive the stock skyward.
In typical years, the annual rebalancing of the Russell indexes is a big day for stocks moving in and out of the benchmarks and a non-event for ivnestors whose asset allocation isn’t tied to the revamp. The rise of meme stocks makes this year a somewhat different story.
The reshuffle will mean further deterioration in quality of the Russell 2000’s components with the proportion of profit generating companies in the index falling to the lowest in more than 20 years, said Jefferies LLC’s Steve DeSanctis. AMC, which will be the Russell 2000’s largest member, has lost money for seven-consecutive quarters.
“The gap between the haves and the have-nots in the index is becoming wider, which will open a lot of opportunities for stock pickers on the right side of the trade,” DeSanctis said in an interview. “The volatility in the Russell 2000 will likely go up because of the universe of companies it will consist of.”
Whereas GameStop’s volatility has had a notable effect on the Russell 2000 and related exchange-traded funds this year, it will probably have little impact on the large cap index, whose weightings are dominated by megacap companies like Apple Inc. and Microsoft Corp., according to Mike Dickson, head of portfolio management at Horizon Investments.
“It’s not going to matter at all in the Russell 1000 because it’ll be one of the smallest stocks in there and the index is extremely top heavy,” he said on Friday.
The reconstitution caused some volatility in the last few minutes of trading on Friday. Small-cap stocks like Edgewise Therapeutics Inc., Arko Corp. and Oasis Petroleum Inc. all sank just before the close ahead of anticipated additions to the Russell 3000.
GameStop pared losses in the last 30 minutes of trading and closed with a decline of 1.3% at $209.51. AMC fell 4.7% to $54.06. Both stocks were little changed in postmarket trading at 6:53 p.m. in New York.
What Bloomberg Intelligence says
If Russell’s annual reconstitution were held today, high flying Reddit stocks like AMC Entertainment and GameStop would likely graduate to the provider’s large-cap gauge even though the former was not large enough on the May 7 ranking day.
--Analyst Michael Casper and Chief Equity Strategist Gina Martin Adams
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