SOURCE: Russell Investments

Russell Investments

April 18, 2013 12:11 ET

Trading Places: Opposite Performance Stories for Small-Cap and Large-Cap Stocks According to the Russell U.S. Indexes

SEATTLE, WA--(Marketwired - Apr 18, 2013) - The U.S. equity market continues to surge in 2013 as illustrated by the rise of the Russell 1000® Index of large-cap U.S. stocks (+12.3%) and the Russell 2000® Index of small-cap U.S. stocks (+11.4%) year-to-date as of April 12th. However, a closer look at the Russell Defensive and Dynamic Indexes performance within the indexes for this same time period reveals two opposite performance stories.

The Russell 2000® Dynamic Index, which identifies and measures more dynamic-oriented stocks within the Russell 2000® Index of small-cap U.S. stocks, outperformed both its Defensive counterpart and the Russell 2000® Index for the year-to-date as of April 12th.

For large-cap U.S. stocks, the situation is reversed. The Russell 1000® Defensive Index, which identifies and measures more defensive-oriented stocks within the Russell 1000® Index of large-cap U.S. stocks, outperformed both its Dynamic counterpart and the Russell 1000® Index for the year-to-date as of April 12th.

The Russell Stability Indexes™ are style-based benchmarks, created from existing Russell Indexes, which identify stocks based on sensitivity to economic cycles, credit cycles and market volatility, referred to as stability. The more stable half of the market is called Defensive and the less stable half of the market is called Dynamic.

"One of the macroeconomic messages so far in 2013 is that the U.S. economic expansion appears to be quite resilient in the face of fiscal tightening, ongoing recession in Europe and somewhat disappointing growth in emerging markets, perhaps putting an end to the risk-on, risk-off roller coaster of the past three years. Within the U.S. equity market, however, it appears that strong performing small-cap stocks have shared a different set of characteristics than strong performing large-cap stocks. Small-cap markets appear to have rewarded companies that have taken on debt to grow amid historically low interest rates. In an environment in which the all-encompassing risk-on, risk-off tide may no longer swamp firm-specific volatility, large-cap markets, on the other hand, appear to have rewarded companies that show lower firm-specific volatility of price and earnings," said Mike Dueker, chief economist for Russell Investments. The result is that Defensive stocks have outperformed among Russell 1000 firms and Dynamic stocks have outperformed among Russell 2000 firms. 

"Oftentimes when a market is moving in lockstep one direction or the other, a broad set of market indexes may not tell the whole story," said David Koenig, CFA, FRM, investment strategist with Russell Indexes. "The additional analysis that is possible through the Russell Stability Indexes helps to ensure a deeper level of analysis, understanding and insight into what may be driving the U.S. equity market."

Russell Index Returns

Index Year-To-Date as of April 12th
Russell 1000® Index 12.3%
Russell 1000®  Defensive Index 14.2%
Russell 1000®  Dynamic Index 10.5%
Russell 2000® Index 11.4%
Russell 2000® Defensive Index 10.7%
Russell 2000® Dynamic Index 12.1%

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

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. Dueker and Mr. Koenig reflect market performance and observations as of April 12th, 2013 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.

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.