SOURCE: Russell Investments

Russell Investments

September 24, 2014 16:54 ET

US Cap Gap Widens: Spread Between U.S. Large- & Small-Cap Stock Performance Widened in the Third Quarter as of 9/23; YTD Large Cap to Small Cap Differential Second Largest Since '98

SEATTLE, WA--(Marketwired - Sep 24, 2014) - U.S. large-cap stocks as reflected by the Russell 1000® Index returned 1.2% in the third quarter as of September 23 and 8.6% year-to-date. And the performance gap between U.S. large cap stocks and small cap stocks has widened considerably in the third quarter, as U.S. small cap stocks as reflected by the Russell 2000® Index have lost (-6.0%) quarter-to-date and currently stand at a (-3.0%) return for 2014 as of September 23. 

Interestingly, the (-11.6%) underperformance for U.S. small cap stocks relative to U.S. large cap stocks year-to-date as of September 23 is the second largest gap through this point in the year between U.S. small caps and U.S. large caps since 1998, when the Russell 1000 outperformed the Russell 2000 by 22.3% as of September 23. 

And across both large and small-cap U.S. stocks, investors have favored value over growth year-to-date as of September 23.

  • Despite strong relative performance for the Russell 1000® Growth Index in the third quarter to date (+1.7%), the Russell 1000® Value Index has still outperformed its growth counterpart year-to-date with a 9.1% return.

  • The Russell 2000® Growth Index has lost (-3.2%) year-to-date as of September 23, compared to a (-2.7%) for the Russell 2000® Value Index.

"During the third quarter investors have shown a strong preference for larger cap stocks, particularly large cap growth stocks in the Healthcare and Technology sectors while small cap energy stocks have underperformed dramatically after being the best performing small cap sector during the first half of the year; a pattern similar to oil prices in 2014," said Megan Roach, CFA, head of U.S. small cap equity research with Russell Investments. "And for the year-to-date, growth and value relative performance has been mixed although the low interest rate environment has benefitted areas like REITs and Utilities which comprise a larger portion of the value than the growth indexes."

"Russell's suite of U.S. market indexes can help investors understand constantly changing market dynamics," said Tom Goodwin, senior index research director with Russell Investments. "After a high flying year in 2013, U.S. small caps have come back down to earth. Understanding what is happening in this important asset class is critical for multi-asset investors, and objective and comprehensive U.S. market indexes can be a great tool for market analysis and exposure."

Widening Gap Between Large and Small in Third Quarter: Russell Indexes

 Russell Index 3rd Qtr. To Date
as of 9/23/14
First Half 2014 YTD 2014 as of
 Russell 1000® Index 1.2% 7.3% 8.6%
 Russell 1000® Growth Index 1.7% 6.3% 8.1%
 Russell 1000® Value Index 0.7% 8.3% 9.1%
 Russell 2000® Index -6.0% 3.2% -3.0%
 Russell 2000® Growth Index -5.3% 2.2% -3.2%
 Russell 2000® Value Index -6.7% 4.2% -2.7%

Source: Russell Investments. Returns are total returns (reflect reinvestment of dividends and distributions) and are denominated in U.S. dollars.

For more information on the Russell 2000® Index and the entire Russell Indexes family, go to the Russell Indexes website.

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

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 Ms. Roach and Mr. Goodwin reflect market performance as of September 23, 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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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.