The June 2014 Russell 2000 Index Reconstitution On June 13, 2014, the new constituents of the Russell 1000 and 2000 indices were announced. Two of the companies that were going to be removed from the Russell 1000 and added to the Russell 2000 were First Citizens Bancshares, Incorporated (FCB), and Innoviva, Inc. (Innoviva), because the market cap of both of these companies (Exhibit 2) was well below the lowest market-cap stock of the Russell 1000 (around $160 million) after the change. FCB, based in Raleigh, North Carolina, was a bank holding company with two subsidiaries: First Citizens Bank and IronStone Bank. The bank operated over 550 branches in 20 states, scattered primarily across the southeastern and western United States. The company provided standard consumer, business, and commercial banking services such as deposits, loans, and mortgages. However, the bulk of its revenue came from interest paid on loans, in particular real estate, construction, and land development loans. As a result of the economic downturn in the late 2000s, FCB was able to expand by acquiring smaller failed financial institutions. The bank's expanded branch network allowed it to reach new markets and fund additional revenue-raising loans. One of the challenges to bank and credit unions such as FCB was that demand for their services was highly dependent on business transactions, and could fluctuate with rises and declines in the economy. Periods of economic growth were often marked by expansion, development, and increased borrowing, which would increase bank revenue. However, the contrary was true during periods of recession. Banks were also exposed to frequent changes in interest rate, which affected the demand for loans and the amount lenders were willing to save. Innoviva was a biopharmaceutical company that focused primarily on research and development. It was headquartered in Brisbane, California, but its products were sold all over the world, including in the United States, Japan, Canada, and Western Europe. It targeted health areas including respiratory disease, bacterial infections, and central nervous system pain. One unique aspect of Innoviva's platform was that it partnered with other pharmaceutical companies during the late stages of drug development. This enabled companies to expedite the development and commercialization process, allowing new drugs to reach a wider market more quickly. In 2012, the company collaborated with Astellas Pharma Inc. to develop VIBATIV, a highly successful infection treatment. This medical breakthrough raised the company's revenue by 454%. Similarly, Innoviva's participation in the development of Relvar/Breo Ellipta and Anoro Ellipta asthma treatments, launched in 2014, earned the company millions of dollars in royalties. Being near the bottom of the Russell 1000, Innoviva and FCB comprised only a very small percentage of the index. Because of their small weight, active managers who were benchmarked relative to the Russell 1000 could safely ignore the two stocks. However, dropping out of the Russell 1000 put them among the largest market-cap stocks in the Russell 2000, simply because the Russell 2000 was comprised of small-market-cap companies. As a result, Innoviva and FCB comprised a large portion of the Russell 2000.