Thirty years young: Russell 2000® Index becomes an “active” adult

30 years of Russell 2000 Index

Turning 30 is often regarded as a one-way crossing into permanent adulthood.  At age 30, our years of getting established give way to years of being part of “the establishment,” in whatever social, political or professional form that may take.

This year our own 30-year-old, the Russell 2000® Index, takes its place as one of the most recognized U.S. equity market benchmarks. For those of us who build and operate the Russell 2000, having the index enter its fourth decade offers a moment for reflection – albeit a fleeting moment because the investment market measured by this index is changing faster than ever.

As a stock index, it’s come a long way. Before the Russell 2000 made its debut in 1984, investors were unable to accurately measure the U.S. small cap market segment or assess performance relative to the U.S. large cap segment. Any effort at small cap analysis was at risk of apples-to-oranges comparisons.

The Russell 2000 brought objectivity and precision to the U.S. small cap equity market, providing a way for investors to more precisely understand the characteristics and behavior of U.S. small cap stocks. In turn, this helped enable more precise asset allocation decisions. Eventually, the index helped define a distinct asset class that is now a mainstay in many portfolios.  

To offer some perspective, I have authored a new paper, The Russell 2000 Index: 30 years of small cap, and produced a Q&A video, Big picture on small cap.” Both pieces provide a retrospective by looking back through the lens of the Russell 2000, highlighting key U.S. equity market trends as illustrated by the history of the index from past to present.

By looking back, I am reminded of the incredible history and evolution of the U.S. small cap markets over the last three decades. I’m proud that Russell was a pioneer in helping to focus a spotlight on this vibrant market segment.

By looking forward, I am struck by the ecosystem of financial products that continues to grow up around the Russell 2000 and how many different ways investors have come to use the index as a strategic tool. We expect this trend to continue, even as our small cap index moves inexorably into its 30-something years.

 

Disclosures:                    

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. 

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.

Past performance does not guarantee future performance. 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 Investments is the owner of the trademarks, service marks and copyrights related to its 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.

Copyright © Russell Investments 2014. All rights reserved.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty. 

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A Good Friday look at a good week

On this week’s Market Week in Review video webcast, Chief Investment Strategist Erik Ristuben discusses the strong week in U.S. equity markets and what he believes corporate earnings say about stock valuations and winter’s impact on the economy. Communications Director Mark Soupiset hosts this week’s episode, which also covers Ristuben’s views on what a sanctions war between the West and Russia over the Ukrainian situation may mean for markets there, as well as his perspectives on Emerging Markets returns globally. 

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Winter freeze gives way to market heat

Winter freeze gives way to market heatAs we enter the second quarter of 2014, the economic landscape is heating up amid an environment of continuing volatility and uncertainty. Our Strategists’ 2014 Global Outlook – Second Quarter Updatepoints to some of the key warming trends:

  • The February freeze in U.S. equity markets is thawing, giving way to a rise in stock valuations.
  • The U.S. Fed’s updates are starting to sound slightly more hawkish.
  • Concerns about China’s debt are escalating.
  • Japan’s consumption tax hike is now taking effect.

Add to this the geo-political drama in Crimea and the simmering China-Japan stand-off in the East China Sea, and we have no shortage of potential uncertainties to affect market sentiment.

With this backdrop, global markets are struggling to find a clear direction. Our indicators point to a probable moderate, low-inflation expansion that may generate job gains of around 215,000 per month during the remainder of 2014.

These indicators also suggest that the Fed will begin raising interest rates in the middle of 2015. You can see more of our updated figures in our 2014 Outlook Infographic. At this stage, our outlook includes a general preference for equities over fixed income, an appreciation for credit and a bias against exposure to long-term interest rates.

With a global perspective in mind, our analysts have provided thumbnail assessments of three major regions within the new Outlook report:

  • North America - Our strategist, Doug Gordon, discusses the tension between stretched equity valuations and a cyclical growth upswing. He concludes that the growth outlook may push markets modesty higher, with a potential bias to large-caps and value.
  • Asia-Pacific –Strategist Graham Harman devotes special attention to Japan, where the initial euphoria over “Abenomics” seems to have passed and investors are questioning whether it was another false dawn. Graham’s analysis points to transformative change in Japan, and he believes Japan will likely return to favor with investors once the impact of the consumption tax rise becomes clear. In China, Graham sees uncertainty over the rate of continued GDP growth. This, combined with the after-effects of currency collapses in the so-called “fragile-five”1 emerging markets (EM) economies, makes us cautious on EM exposure.
  • Europe – In a word, the situation in Europe is complex. Economic growth seems to be emerging at last, but disinflationary forces appear to be taking hold. The risk of a growth disappointment is possible and rising. Wouter Sturkenboom, our strategist covering Europe, Middle East, Africa, is concerned that the European Central Bank may be slow to provide additional stimulus. European stocks could be poised for potential outperformance if the stimulus materializes, but until then, our strategist prefers benchmark-level exposure.

Markets always seem to find new ways to challenge us. This challenge now appears to be coming from the combination of late-cycle valuations for asset classes like credit and U.S. equities, and mid-cycle dynamics in developed economies. Our Russell models and process tell us that the economic cycle will likely win out, and investors should consider maintaining equity market exposure. However, the temperature is rising. It could be a warm northern hemisphere summer, not just for vacationers, but for investors as well. 

1 The “fragile five” emerging market economies include Turkey, Brazil, India, South Africa and Indonesia

Disclosures:

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. 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 or entity.

Investing involves risk and principal loss is possible.

Forecasting is inherently uncertain and may be incorrect. It is not representative of a projection of the stock market, or of any specific investment.

Diversification, strategic asset allocation and multi-asset investing do not assure profit or protect against loss in declining markets.

Past performance does not guarantee future performance. 

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 Investments is the owner of the trademarks, service marks and copyrights related to its 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.

Copyright © Russell Investments 2014. All rights reserved.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty. 

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