SOURCE: Russell Investments

Russell Investments

November 14, 2014 09:34 ET

U.S. Small Cap Equity Market Volatility Has Decreased Since Mid-October High While Performance Has Been Strong Relative to U.S. Large Cap Equities; Russell Indexes

SEATTLE, WA--(Marketwired - Nov 14, 2014) -  In mid-October, U.S small-cap equity market volatility spiked, with the CBOE Russell 2000 Volatility Indexsm (RVX) closing at 26.22 on October 16, the highest closing level for RVX year-to-date.

Since October 16, small cap volatility as reflected by RVX has trended downward, closing at 17.74 on November 10. And while volatility has trended downward for U.S. small caps, performance for the asset class has been strong in this time period, with the U.S. small cap Russell 2000® Index returning 10.1% relative to a 9.6% returns the U.S. large cap Russell 1000® Index for the same period.

CBOE and Russell options and market experts comment on lower volatility coupled with stronger relative performance for U.S. small caps in recent weeks, and what this might mean for investors for the remainder of 2014 and beyond.

Russell Rhoads, CFA & Senior Instructor, CBOE Options Institute
"CBOE has data for the CBOE Russell 2000 Volatility Index (RVX) going back to January 1, 2004. On October 15 of this year, RVX closed lower than the VIX Index for the first and only time in the ten-plus year history of the RVX Index. To me, this signaled that the market was assigning less risk to small cap stocks than it was to the general market."

Jon Eggins - Senior U.S. Small Cap Portfolio Manager, Russell Investments
"Russell's team of global strategists forecast 2014 as a year of validation, and after such a strong year in 2013, we believed U.S. small caps had more validating to do than most. U.S. large cap stocks have outperformed small caps in 2014.* In October, while overall U.S. equity market volatility spiked, small cap stocks performed better than large cap stocks. In fact, small caps actually posted some positive returns when the rest of market fell in early October. This earnings season, small cap results have generally been good, supporting their rebound. We continue to believe that smaller cap companies, with their higher exposure to US domestic revenues, are well positioned to weather volatility going forward. We remain cautious, however, due to relatively high valuations and have a preference for active value strategies in our portfolios."

For more information on the Russell 2000® Index and the CBOE Russell 2000 Volatility Indexsm, go to the Russell Indexes website or CBOE Russell 2000 Volatility Index microsite.

Source: Russell Investments & CBOE. CBOE and VIX are registered trademarks of the Chicago Board Options Exchange; S&P 500 is a registered trademark of Standard & Poor's Corporation.

*As reflected by the Russell 1000® and Russell 2000® Index.

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 Mr. Rhoads and Mr. Eggins reflect market performance as of November 10, 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.

Russell Investment Group is an independent organization and is not affiliated with the Chicago Board Options Exchange (CBOE) or Standard & Poor's (S&P).

Copyright © Russell Investments 2014. All rights reserved.

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.