Two weeks ago, I published an article here on Seeking Alpha talking about five reasons why I wouldn't want to be shorting Vringo right now.
One of those reasons had to do with an upcoming catalyst of the rebalancing of the Russel Indexes (Global, Micro, 1000, 2000, 3000). After doing plenty of research, comparing hundreds of companies as well as looking over the index membership guidelines, I came to the conclusion that Vringo (NASDAQ:VRNG) would most likely be accepted into the Russell Indexes. After last Friday's announcement, my hunch was reaffirmed.
So is this really a big deal? Before you answer, think about this for a moment. When the new Russell Indexes are announced, fund managers and institutions will be obligated to buy the new additions and sell the deletions. Because of this, hundreds of millions of dollars of demand (or selling pressure) will take place. Depending upon your investments, this can be a really good thing, or this can be a really bad thing. For investors of Vringo, this is a great thing, as Vringo has been included in the preliminary additions to the Russell 2013 Indexes. Does this sound like something you should know about now? Yes!
Most investors forget that Vringo was actualy added to the Russell Microcap Index last year. Clifford J. Weinstein, Executive Vice President of Vringo said:
We are pleased to be integrated into the Russell Indexes. This accomplishment is an important milestone in the continued execution of our corporate strategy. We believe our inclusion in the Russell Index will expand Vringo's visibility to a broader range of institutional investors.
Now that Vringo has been added to other Indexes, Vringo is expanding its visibility to an even broader range of investors. This is a positive sign for investors, as Vringo looks to show that its transformed itself from a small speculative, micro-cap stock into a more broadly held and sound technology company that promises continued potential at a far lower risk. Before institutional investors get involved and risk their clients' money, they need to be sure that the investments they are looking into have a lower amount of risk, and Vringo now appears to meet those guidlines. This is good news for investors who are already long the stock and for those looking to up their position.
Russell's Past Performance
Measuring performance in the stock market is always a must. Whether it be of analysts' buy/sell recommendations, as well as money managers' track records, past performances can shed a lot of light on future performance. While nobody can predict the future, learning from the past is never a bad thing, as it allows you to gain a better insight into what will likely happen again. On that note, let's take a look at last year's performance of the Russell Indexes.
The Russell 3000 Index, which reflects almost 98% of the investable U.S. equity universe, returned 27.9% for this year's reconstitution period, from May 31, 2012 through May 31, 2013. Performance was equally as strong across large-and small-cap stocks, with the U.S. large-cap Russell 1000 Index returning 27.6% and the U.S. small-cap Russell 2000 Index returning 31.1%. I would like to mention as well that the Russell 1000, Russell 2000 and Russell 3000 Indexes all broke through new all-time historical highs earlier this year. Vringo seems to be in really good hands don't you think?
The Russell Index Reconstruction Schedule
If Vringo was part of the preliminary additions, then when does the final rebalancing take place? On the last trading day in May, all eligible securities are ranked by their total market capitalization. Companies whose stocks are listed on eligible stock exchanges in eligible countries and that pass minimum liquidity and other tests are considered for inclusion in the indexes.
- June 14: Preliminary additions and deletions to the Russell Global, Russell 3000 and Russell Microcap Indexes are published.
- June 21: Updates to the list of additions and deletions.
- June 28: Reconstitution final after the close of the U.S. markets.
- July 1: Final membership lists are posted for the Russell Global, Russell 1000, 2000, 3000, Russell Midcap & Russell Microcap Indexes.
After talking to some investors about the Russel Indexes, some of them mentioned that it was a big deal for them, while others said it was non issue. I feel that it is a big deal for companies such as Vringo, Vipshop (NYSE:VIPS), ACADIA Pharmaceuticals (NASDAQ:ACAD), American Realty (NASDAQ:ARCP), Burger King (NYSE:BKW), First Security Group (NASDAQ:FSGI), Sarepta Therapeutics (NASDAQ:SRPT) and SeaWorld (NYSE:SEAS) to be part of an index such as the Russell, because it shines more light on them. Now what kind of company wouldn't want that?
During the summer months, everybody knows volume is hard to come by. The Russell rebalancing that takes place allows many traders as well as investors a great opportunity to make the most of this normally substantial cycle of volume.
Obviously, being included in more than one index is better for companies as it translates to an even bigger potential of buyers. Over the next couple of weeks, stocks such as Vringo will be highlighted as well as accumulated with many more worth watching as I've listed above. Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.