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When you know what you want

By: Catherine Yoshimoto, Senior Index Product Manager

How many people have wished that a pack of candy came with only certain flavors, like a pack containing only the strawberry or the lemon? Well, when it comes to choosing a specific style index, we’re in luck—there are “all strawberry” or “all lemon” packs in the Russell Pure Style Index Series. These indexes are constructed to contain only those constituent companies that are 100% value or 100% growth—giving market participants the option to choose exposure to one style and not the other.

The Russell Pure Style Index Series (Pure Style) is based on eight standard market-cap weighted Russell US Style Indexes (Style). There are both Pure Growth and Pure Value indexes associated with the Russell Top 200®, Russell Midcap®, Russell 2000® and Russell 1000® indexes. The Pure Style Indexes are constructed to include only those constituent companies that display only value or only growth characteristics."Weights within each Pure Style index are assigned according to the relevant style score of each constituent within that index. For example, the highest value scores are assigned the highest weights in the Pure Value indexes and the highest growth scores are assigned the highest weights in the Pure Growth indexes.

As we can see below, this sharper focus on style tends to magnify the effects of the Pure Style indexes within each size and style segment. When one style outperformed the other, the Pure Style indexes exhibited greater differentiation than their standard Style index counterparts. For example, when value indexes outperformed growth indexes, the average difference between the Pure Value and Pure Growth indexes was greater than the average difference between the standard Value and Growth indexes. This differentiation between the standard Russell Style Indexes and the Russell Pure Style Index Series is consistent over the Pure Style index series history, from July 1998 - December 2016.

As illustrated below, 2016 was a positive year for all indexes shown, except for the Russell Top 200 Pure Growth Index. Each Russell Pure Value Index outperformed its standard Russell Value Index counterpart, with the small cap Russell 2000 Pure Value Index leading the pack. On the flip side, each Pure Growth index underperformed its standard Style counterpart. This is consistent with past periods when value outperformed growth, as shown in the first chart.

Furthermore, since the design of the Russell Pure Style Index Series was intended to create a sharper distinction between growth and value, the differences in total returns between the Pure Growth and Pure Value indexes were greater than the differences between the standard Growth and Value indexes in 2016.

So for market participants who want just one particular flavor, the Russell Pure Style Index Series offers tools to help exercise their strong conviction towards one style or another.  Now, if only we could get candy companies to do the same!

Please follow the link to find more detail on the Russell Pure Style Indexes.

 

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