Some stocks will see significant volume. Trading firm ITG estimates that 800 securities will trade more than a full day’s volume at or near the close, and 150 will need to buy or sell more than 10 days’ worth of volume.
Jazz Pharmaceuticals, a hot biotech company that was previously domiciled in Ireland and is now included as a U.S. company, is going directly into the Russell 1000 without ever being in the Russell 2000. Indexers will need to buy 2.3 million shares, which is more than five times a full day’s volume, according to ITG.
Even more significant moves come when a company goes into or out of the indexes. Some companies have increased in value and are going from the Russell 2000 into the Russell 1000.
A good example: Grubhub, which has gone from $43 to $113 in the past year and has increased its shares outstanding.
That means everyone who owned Grubhub in the Russell 2000 is going to sell it, and everyone who is indexed to the Russell 1000 is going to buy it. The net result: ITG estimates that Grubhub will see volume of about 3.8 million shares — about three times its normal volume.
What does it mean for Grubhub? It sounds like good news, and it is. But there is far more money indexed to the Russell 2000 than to the Russell 1000, so those selling it in the Russell 2000 have more to sell in dollar terms than those buying it in the Russell 1000. The bottom line: Grubhub will be for sale at the close.
Other companies going into the Russell 1000 from the Russell 2000 will also have stock for sale at the close: biotech firms Exact Sciences and Bluebird Bio and software firm Aspen Technology have either increased their share count significantly or have had big moves up in the last year and are graduating to the large-cap index.