SOURCE: Russell Investments

Russell Investments

January 07, 2014 16:18 ET

U.S. Small Cap Stocks as Reflected by the Russell 2000® Index Enjoy Best Annual Return in More Than a Decade: More Room to Run in 2014?

SEATTLE, WA--(Marketwired - Jan 7, 2014) - The Russell 2000® Index, which measures the performance of the small-cap segment of the U.S. equity universe, had a total return of 38.8% in 2013, the strongest return for the Index since 2003 (47.3%). Small cap stocks outperformed large cap stocks by more than 5 percentage points for this same time period, with the Russell 1000 Index, which measures the performance of U.S. large-cap equities, posting a total return of 33.1%. 

"U.S. small cap stocks have benefited as the U.S. economy has strengthened over the course of 2013 and shown signs of transitioning from recovery to expansion. U.S. small cap stocks are closely connected to the U.S. economy, with Russell 2000 Index companies generating approximately 84% of their revenue within the U.S., versus 70% U.S. revenue for Russell 1000 companies*. This may in part help explain the strong performance of the Russell 2000 Index relative to its large cap counterpart," said David Koenig, index investment strategist with Russell Investments

Russell Investments global team of investment strategists, in its recently released 2014 Annual Global Outlook, shares its view on potential prospects for U.S. small cap stocks and whether they still have room to run in the coming year.

"Small cap stocks, particularly in the U.S., led in the last year in which global equity markets have shown strong appreciation," said Stephen Wood, chief market strategist for Russell Investments. "And while we believe that near term momemtum may continue to support small cap equities relative to large cap, our long-term mean reversion as well as P/E and price-to-sales (P/S) ratio comparisons lead us to conclude that a cyclical small cap run may be losing steam." Wood added that an investment approach to U.S. small caps should be part of a broader global portfolio approach. "Russell believes the best way to achieve a desired rate of return while managing risk is through actively managed, globally diversified multi-asset strategies across a wide range of regions and market caps," he said.

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

*FactSet, as of March 31, 2012. Based on each company's latest reported fiscal year.

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. Wood and Mr. Koenig reflect market performance as of December 31, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance. 

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

This material is not an offer, solicitation or recommendation to purchase any security.

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.