Much like the annual event of spring cleaning, Russell Investments is refiguring the Russell 2000 and with it comes many implications.

In an effort to maintain true representation of global equity markets and ensure changes in the market are accurately reflected, Russell annually rebalances all of its indices, including the small-cap Russell 2000 index.

As a result of the reconstitution, the financial and energy sectors are likely to see the most action, according to Steve Wood, senior portfolio strategist for Russell Investments.

“If you’re looking at the market-cap issues, the performance of financials and energy are going to be the two biggest dynamics — energy having done well, financials having done poorly,” Wood said in an interview with SmallCapInvestor.com. “You’re going to see a lot of transition and I think that will account for a significant portion of the migration in and out of [the index]; energy coming to the market cap or moving out of the 2000 whereas financials [will] far further down the ladder.”

Wood says energy will probably graduate to the Russell 1000 from the Russell 2000 (the large cap index), while consumer technology, financials and transportation are the most likely sectors from which companies will be added to the small-cap index.

JP Morgan purports that consumer and financial stocks will comprise 35.81% of the Russell 2000, compared with 34.6% both sectors currently comprise. The investment bank expects 275 additions this year, compared with 175 deletions and forecasts the upper limit for market capitalization will be capped at $165 million. Last year the cut off was $260 million.

Jefferies & Co. estimates that 259 names will be added to the Russell 2000, while 157 names will be subtracted. Of the $4 billion in trade flow that Jefferies expects, the bank says $850 million will stem from materials, while $765 million will flow from technology and $730 million will come from health care.

Certainly the tumultuous state of the economy has been a major determinate . . .

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