SOURCE: Russell Investments

Russell Investments

June 06, 2012 09:04 ET

Russell 2000® Index Stays True to the Small Cap Market

Annual Rebalancing Ensures That the Index Accurately Represents the Small Cap Opportunity Set

SEATTLE, WA--(Marketwire - Jun 6, 2012) - When the Russell Indexes rebalance after the close of market on June 22, 2012 for Russell's annual reconstitution, the Russell 2000 Index will continue to truly represent the small cap segment of the U.S. equity market. The objective and transparent methodology that governs the composition of the Russell 2000 Index helps prevent capitalization drift, making it a highly accurate representation of the true small cap opportunity set.

Russell Indexes draws on Russell's unique insight into global capital markets and multi-asset portfolio construction and implementation to design benchmarks offering exposure to the true performance of different segments and asset classes of the market. This insight has helped the Russell Indexes methodology remain an industry standard after nearly 30 years. In particular, it ensures that the Russell 2000 Index measures only the U.S. small cap asset class and does not stray into other cap tiers.

Investors rely on the Russell Indexes for true market representation. For this reason, the Russell 2000 Index continues to be the institutional investment industry's preferred small cap benchmark, with 97% of U.S. institutional equity products benchmarked to the index as of December 31, 2011.

One reason for the popularity of the Russell 2000 Index may be the fact that it does not exhibit any value bias (other small cap indexes have been shown to have a value bias of greater than 0.12)1 and does not include any mid-cap companies, which are present in other "small cap" indexes. The Russell Indexes have found that a true small cap index has a very distinct risk/return pattern. Other indexes, which may combine small cap and mid cap companies in their constituencies, do not offer exposure to the true performance of the small cap tier of the equity market.

There is a large difference in market cap ranges and historical returns between the Russell 2500™ Index, Russell's mid-cap index, and the Russell 2000 Index. Many "small cap" indexes are more accurately described as "smid-cap," similar to the Russell 2500. Because of their greater cap weights, mid cap stocks will naturally contribute a significant portion of the return of any blended small cap-mid cap index. The top decile (by market cap) of the Russell 2500 has contributed 50% of the return over the last 10 years, making up an average of 46.52% of the weight of the index.

The annual Russell Indexes reconstitution ensures that the each index remains an objective and unbiased representation of its cap tier, helping investors better measure asset class performance and identify market opportunities. When the final list is posted to the Russell Reconstitution website on June 25, 2012, the Russell 2000 Index will continue its tradition as an accurate representation of the true small cap opportunity set for investors.

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few firms that offer actively managed multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell's core capabilities extend across capital markets insights, manager research, Indexes, portfolio implementation and portfolio construction.

Russell has about $155 billion in assets under management (as of 3/31/2012) and works with 2,400 institutional clients, more than 580 independent distribution partners and advisors, and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 12/31/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.5 trillion in 2011 through its implementation services business. Russell calculates more than 80,000 benchmarks daily covering 98% of the investable market globally, 85 countries and more than 10,000 securities. Approximately $3.9 trillion in assets are benchmarked to the Russell Indexes.

Russell is headquartered in Seattle, Washington, USA, and has offices around the world including Amsterdam, Auckland, Beijing, Chicago, Frankfurt, London, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow us @Russell_News.

(1) This figure is based on Russell research using MPI Stylus, covering the period 8/1/96 through 3/31/11, and is applicable to the S&P 600 and the MSCI 1750 Indexes.

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.

Russell's indexes are unmanaged and cannot be invested in directly.