SOURCE: Russell Investments

Russell Investments

August 19, 2014 09:25 ET

It's Fundamental: Year-to-Date Performance of Russell's Fundamentally Weighted Indexes Relative to Russell's Market Cap Weighted Indexes Tracking U.S. Small- and Large-Cap Stocks Help Illustrate Potential Benefits of Diversified Index Approaches

SEATTLE, WA--(Marketwired - Aug 19, 2014) - According to Russell, its indexes that follow a fundamentally weighted approach, selecting and weighting securities based on fundamental measures of company size such as adjusted sales, operating cash flow and dividends plus buybacks, have outperformed its indexes that rank stocks according to market capitalization year-to-date as of August 11.

In the large-cap arena, the fundamentally weighted Russell Fundamental U.S. Large Company Index has returned 6.2% year-to-date as of August 11. This compares to a 6% return for the market capitalization weighted Russell 1000® Index for the same period.

In the small-cap arena, the performance differential this year is more pronounced. The Russell Fundamental U.S. Small Company Index has returned 2.7% year-to-date as of August 11. This compares to a (-1.1%) return for the market capitalization weighted Russell 2000® Index for the same period.

"The relative performance of Russell's fundamentally weighted and cap weighted indexes tracking the U.S. equity market this year have helped illustrate the benefits of blending both approaches," said Anthony B. Davidow, CIMA®, Vice President, Schwab Center for Financial Research®. "Traditional weighting approaches and alternatively weighted, or fundamental, approaches often perform quite differently in different market cycles and for this reason can be complementary."

"It is no surprise that Russell's fundamentally weighted U.S. equity indexes have outperformed their market-cap weighted counterparts during this year's cycle of increasing stock valuations and heightened stock price awareness by investors," said Tom Goodwin, senior index research director for Russell Investments. "The use of economic measures of firm size and routine rebalancing to target economic weights for Russell's fundamental indexes seeks to avoid some of the behavioral noise in the market. The relative benefit of this approach is more evident in certain market environments."

It's Fundamental - Russell Indexes 2014 Year-To-Date Performance (as of August 11th)

Russell Index   2014 YTD as of August 11, 2014
Russell Fundamental US Large Company Index   6.2%
Russell 1000® Index   6.0%
Russell Fundamental US Small Company Index   2.7%
Russell 2000® Index   -1.1%

Source: Russell Investments.

The Russell Fundamental Index® Series offers a unique solution for investors interested in obtaining the potential benefits of alternative beta indexes while maintaining the diversification, transparency and liquidity of traditional indexing. Securities are selected and weighted according to fundamental measures of company size: Adjusted Sales, Operating Cash Flow, and Dividends plus Buybacks.

For more information on the Russell Indexes, go to the Russell Indexes website.

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. Davidow and Mr. Goodwin reflect market performance as of August 11, 2014 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

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.

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