As featured on the website Travilliannext.com on February 19, 2021
A new development and heightened interest leads us back to the Russell topic this week. There were plans to focus on a new topic this week after highlighting what I’ll call the “Russell conundrum” last week, but new developments and a high level of interest in this subject at the moment lead us to delve into this issue again. Recall that last week, I noted that the consensus forecast of the brokerage firms we surveyed pegged the market cap cut-off for the Russell reconstitution at around $200 mil., and that stock price performance for those banks currently in the Russell and below the projected market cap threshold was noticeably weaker than the index since the start of the year.
Russell-ensnared bank stocks have now underperformed by about 15% year-to-date. Wednesday morning, analysts at KBW published a report indicating the market cap cut-off could be as high as $249 mil., ~25% higher than the prior consensus forecast. The stock price reaction during Wednesday’s trading session was immediate, as most bank stocks with market caps ranging from ~$200 mil. to ~$275 mil. generally underperformed. There are now, by my estimation, about 80 banks (give or take) that seem to be ensnared in this Russell situation, and these stocks on average have now underperformed the index by about 15% since the start of the year.
