The Great Benchmark Reset

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Introduction

For decades, investors largely viewed benchmarks as relatively stable representations of the market. Indices such as the Russell 1000® Growth Index and S&P 500® Index were designed to provide broad exposure to major segments of the U.S. economy and became foundational tools for portfolio construction, asset allocation and performance measurement. Historically, benchmark methodologies evolved relatively slowly, market leadership changed more gradually and benchmark construction itself rarely attracted much attention. Increasingly, however, that environment is dramatically changing.

A small number of companies now account for an unprecedented share of benchmark returns. Passive vehicles represent an enormous percentage of market flows. Private companies are remaining private for longer while reaching extraordinary scale before IPO. At the same time, benchmark providers themselves are modifying the rules governing how indices are constructed and maintained.

These developments matter because trillions of dollars are benchmarked directly or indirectly to these indices. As of June 2025, approximately $452 billion tracked the Russell 1000® Growth Index while roughly $250 billion tracked the Russell 1000® Value Index.¹ When benchmark providers modify methodologies, style assignments or inclusion rules, the effects extend far beyond index construction itself and can influence the investment decisions of hundreds of billions of dollars tied directly to those benchmarks.
 

A Record Year of Change

Several of the methodology changes taking place in 2026 would be noteworthy on their own. Taken together, they represent an unprecedented period for benchmark construction.

Russell is moving from annual to semiannual reconstitution, one of the most significant changes to its U.S. index framework in years. Significant style migrations are occurring between the Russell 1000® Growth and Russell 1000® Value indices. New fast-entry IPO rules are being implemented for mega cap companies. Concentration-management frameworks introduced only recently are already being revisited. Meanwhile, S&P has completed a consultation evaluating whether to modify long-standing seasoning, float and profitability requirements.

Viewed collectively, these developments represent one of the most significant periods of benchmark evolution in recent memory.
 

Russell Growth and Value Are Changing More Than Investors Realize

One of the most important consequences of this year’s reconstitution is that the underlying composition of the Russell 1000® Growth and Russell 1000® Value indices is changing meaningfully.

As shown in the following exhibits, several of the market's largest companies are expected to experience substantial changes in benchmark representation. Companies such as Amazon, Apple, Microsoft, and Alphabet are driving significant shifts across both benchmarks, resulting in exposures that may look very different following reconstitution than they did at the beginning of 2025.

One notable observation is that while headline sector changes appear relatively modest, the underlying industry composition changes are far more significant. Following reconstitution, Semiconductors & Semiconductor Equipment are expected to represent approximately 32% of the Russell 1000® Growth Index, up from approximately 24% today.² In other words, nearly one-third of one of the market’s most widely followed growth benchmarks may soon be tied to a single industry group.

In our view, this illustrates how benchmark risks can shift beneath the surface even when top-level sector exposures appear relatively unchanged.
 

When Amazon Becomes the Largest Value Stock

Perhaps the most visible example of the changes occurring within Russell’s style framework is Amazon.

Following reconstitution, Amazon is expected to become the largest constituent in the Russell 1000® Value Index at approximately 6.6% of the benchmark. Apple and Microsoft are also expected to become significant constituents, representing approximately 5.7% and 4.3% of the Index, respectively.³

What makes these changes particularly noteworthy is that Amazon, Apple and Microsoft currently have minimal or no representation in the Russell 1000® Value Index. Following reconstitution, those three companies alone are expected to represent approximately 17% of the benchmark.⁴

For context, the entire top ten of the Russell 1000® Value Index represented approximately 17% of the benchmark at the end of 2024. Following reconstitution, the top ten are expected to represent roughly 29%.⁵

In other words, three companies that currently have limited presence in the benchmark are expected to represent as much weight as the entire top ten constituents did just eighteen months ago.

What makes these shifts particularly noteworthy is that they say less about a fundamental change in the underlying businesses and more about how Russell’s methodology interprets style characteristics.

Russell determines style using one value factor, book-to-price, and two growth factors, historical sales-per-share growth and expected earnings growth. Companies are then allocated between Growth and Value according to their relative factor characteristics.

In our view, these changes highlight how dramatically benchmark exposures can evolve over time. Many investors continue to think of the Russell 1000® Value Index as a relatively stable representation of large-cap value investing. Yet the benchmark’s largest holdings and primary drivers of performance may look very different following this year’s reconstitution than they did only a few years ago.
 

Mega Cap IPOs Are Forcing New Rules

Perhaps nowhere was this evolution more visible than in the recent debate surrounding how future mega cap IPOs should be incorporated into major benchmarks.

Companies such as SpaceX, OpenAI and Anthropic may eventually enter public markets at valuations measured in the hundreds of billions, or even trillions, of dollars. The challenge facing benchmark providers is straightforward: how should companies of that scale be incorporated into public benchmarks?

Russell and S&P have arrived at very different answers.

Russell has moved aggressively to address the arrival of mega cap IPOs through fast-entry rules and updated classification frameworks. SpaceX provides a useful example. Initially, many market participants expected the company to receive a meaningful Value allocation because its Starlink business would likely place it within the Telecommunications industry group. Russell ultimately departed from its historical approach and chose to evaluate SpaceX independently rather than mechanically applying the industry’s average style profile.

S&P, however, recently completed its own consultation and ultimately elected not to change its S&P 500® inclusion framework. As a result, future mega cap IPOs will continue to be subject to existing seasoning periods, profitability requirements and eligibility criteria before becoming eligible for S&P 500® inclusion. Therefore, SpaceX will still need to satisfy the existing 12-month seasoning period and profitability requirements before becoming eligible for inclusion.

In many ways, the divergence itself may be the most interesting development. Benchmark providers are looking at the same market environment, the same concentration dynamics and the same upcoming IPOs, yet arriving at different conclusions regarding how benchmarks should evolve.

This raises an interesting question for investors: if benchmark providers are increasingly making active decisions about inclusion, classification and methodology, how passive are the benchmarks themselves?
 

Why This Matters

Many investors continue to view passive benchmarks as inherently diversified simply because they own hundreds of securities. Yet today’s benchmark exposures increasingly challenge that assumption.

At Brown Advisory, our investment philosophy remains unchanged. We continue to believe durable long-term investment outcomes are driven by business model quality, management execution, capital allocation discipline and the ability of companies to compound value over time.

While benchmark changes and reconstitutions can create meaningful shifts in market exposures, our investment decisions remain grounded in fundamental research and long-term business quality. Our investment decisions are driven by our assessment of the underlying business rather than by benchmark mechanics alone. In our view, these developments reinforce the importance of understanding underlying businesses rather than relying exclusively on increasingly fluid benchmark classifications.
 

Conclusion

Benchmarks were originally designed to measure markets. Increasingly, however, benchmark providers are being forced to determine how markets themselves should be represented.

Russell’s move to semiannual reconstitution, evolving style classifications and new approaches to mega cap IPOs all point to the same conclusion: benchmark construction is entering a period of meaningful change.

At Brown Advisory, these developments do not change the principles that drive our investment decisions. However, we believe they provide important context for understanding how rapidly the structure of passive investing itself is evolving, and why investors should pay closer attention to the frameworks that increasingly shape market exposures.

 

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