SOURCE: Russell Investments

Russell Investments

November 13, 2013 13:47 ET

It's Fundamental: Fundamentally-Weighted U.S. Small Caps Outperformed Their Market-Cap Equivalents in the 4th Quarter and Year-to-Date, According to Russell Investments

SEATTLE, WA--(Marketwired - Nov 13, 2013) - While the U.S. small-cap Russell 2000® Index has reached record highs this year and returned nearly 31% year-to-date as of Friday, November 8, its fundamentally weighted counterpart has outperformed the U.S. small cap benchmark fourth quarter-to-date and year-to-date.

The Russell Fundamental U.S. Small Company Index, which weights and tracks the performance of the U.S. small cap market based on fundamental measures of company size such as adjusted sales, operating cash flow and dividends plus buybacks, has outperformed the market capitalization-weighted Russell 2000 Index in the fourth quarter-to-date and year-to-date as of November 8.

"Continued strong performance year-to-date for the U.S. equity market as reflected by the U.S.-focused Russell 2000 Index may at least partly reflect continued positive-but-mixed economic and earnings data and the recent upside surprise jobs data," said Stephen Wood, chief market strategist for Russell Investments. "And while small-cap valuations may have increased year-to-date, the strong relative performance for fundamentally weighted small-cap stocks as reflected by the Russell Fundamental US Small Company Index may suggest continued strong fundamentals for many small cap companies. This serves to underscore the importance of stock selection in this market environment."

Russell Index   1Q 2013   2Q 2013   3Q 2013   4Q 2013 a/o 11/8   2013 YTD a/o 11/8
Russell 2000 Index   12.4%   3.1%   10.2%   2.5%   30.9%
Russell Fundamental US Small Company Index   12.7%   2.8%   8.8%   4.4%   31.6%

"Recent performance for the Russell Fundamental US Small Company Index relative to its parent index the Russell 2000 may suggest continued fundamental growth in many U.S. small caps," said David Koenig, index investment strategist for Russell Investments. "The Russell Fundamental Index® Series methodology uses an alternative weighting approach to weight constituents and measure company performance on fundamental measures of company size, rather than stock price, and is periodically rebalanced. The enhanced insight into U.S. small-cap market dynamics made possible through Russell Indexes helps investors to view the asset class in a more nuanced way to better understand markets and take greater control in portfolio construction."

Source: Russell Investments. Returns are denominated in US dollars.

The Russell Global Index measures the performance of the global equity market based on all investable equity securities, and is constructed to provide a comprehensive and unbiased barometer for the global segment, The index includes more than 10,000 securities in 47 countries, and covers 98% of the investable global market. All securities in the Russell Global Index are classified according to size, region, country and sector; as a result the index can be segmented into more than 300 distinct benchmarks.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index.

Opinions expressed by Mr. Wood and Mr. Koenig reflect market performance and observations as of November 8, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

This material is not an offer, solicitation or recommendation to purchase any security.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investments and Research Affiliates LLC have entered into a strategic alliance with respect to the Russell Fundamental Index® Series. Subject to Research Affiliate's intellectual property rights in certain content, Russell Investments is the owner of all copyrights related to the Russell Fundamental Indexes. Russell Investments and Research Affiliates jointly own all trademark and service mark rights in and to the Russell Fundamental Index® Series. Research Affiliates is the owner of the trademarks, service marks, patents and copyrights related to the Fundamental Index and the Fundamental Index methodology.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.