How come the Russell 2000 has only 1974 stocks in the newly updated list?

Question

Why is the Russell 2000 comprised of only 1974 stocks? I counted the total number of stocks as 1974 from their June 2013 list.
The fact sheet says that the Russell 2000 "includes approximately 2000 of the smallest securities" so they acknowledge it's not exactly 2000.
But one would assume that the Russell 2000 should have exactly 2000 stocks.
Don't they just take the bottom 2000 stocks from the Russell 3000 so they have 2000 total? If they do not do this, then what are the oddities in their algorithm to populate the 2000 index that results in only 1974 stocks being used? I can understand during the course of year a stock may get delisted as a result of going private or getting acquired thus the total number of stocks would not be 2000. But this new list from June 28, 2013 would be the ideal time to re-set the list to 2000 total stocks in the index. What is the specific reason they do not do this?

mhoran_psprep · Accepted Answer

Based on their published methodology

After the initial market capitalization breakpoints are determined by
the ranges listed above, new members are assigned on the basis of the
breakpoints, and existing members are reviewed to determine if they
fall within a cumulative 5% market cap range around these new market
capitalization breakpoints. If an existing member's market cap falls
within this cumulative 5% of the market capitalization breakpoint, it
will remain in its current index rather than be moved to a different
market capitalization – based Russell index. Companies that fall on
the edge of market capitalization breakpoints are often still within a
manager's opportunity set, since they have not significantly grown or
declined in market capitalization.

In other words they won't move companies from the Russell 2000 to the Russell 1000 to the other just for the sake of moving them, if they are within 5% of the break point. Moving them just adds to selling and buying of stocks with no real advantage.
This can mean that one list will be too big and the other too small.

Norgate Data · Answer

An additional reason is related to the schedule of reconstitution.  Russell ranks all securities on the last trading day of May and assigns them into different indexes based upon market cap/style etc. Existing members of the index are also assessed to see if they are eligible to stay in the index, even though they may not strictly be within the exact market cap range.

These companies are published about two weeks later as preliminary lists.  The stocks in the preliminary lists do not change unless there are delistings/takeovers/demergers - which can and do occur.  Demerged entities are added to the index.  Delistings are removed from the index.  For the next 3 quarters, for the Russell 2000, any new IPOs are assessed and added to the index if they fit in the market cap range but the index is not constituted until June the following year.

We have been busy researching the additions and removals for each quarter historically.  Since July 1990 there have been over 8900 stocks in the Russell 2000 (and over 10000 in the Russell 3000).  Of those, over 5700 (Russell 2000) and 6300 (Russell 3000) are delisted and no longer trading on any US exchange or as OTC stocks.

How come the Russell 2000 has only 1974 stocks in the newly updated list?

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