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Index IDEA: Micro caps top the caps YTD

The Russell Microcap Index, which includes the smallest 1,000 securities in the US small cap Russell 2000 Index, has a return of 11.5% in 2018, exceeding the performance of Russell US Indexes measuring small-, mid-, large- and mega-cap stocks, according to new research from global index provider FTSE Russell.

Alec Young – managing director, global markets research, FTSE Russell

“While market volatility has increased YTD relative to 2017’s historic calm, healthy economic growth, strong corporate fundamentals and still accommodative Fed monetary policy have largely offset geopolitical and trade jitters as well as worries about higher interest rates.” said Alec Young, managing director, global markets research.

“With many of 2018’s equity headwinds being international in nature, the Russell Microcap Index has outperformed the other major cap tiers thanks to micro caps’ lower international sales exposure," he says. "Being more domestic has insulated micro caps from trade tensions, geopolitical worries and the earnings drag stemming from a stronger dollar. Being less global also gives micro caps more exposure to several positives including tax reform, increasing deregulation and faster US economic growth relative to weaker recoveries in Europe and Japan. All these tailwinds are helping drive faster profit growth for micro caps relative to their blue chip counterparts, helping fuel YTD leadership.”

Catherine Yoshimoto – director, product management, FTSE Russell:

“Micro cap stocks have been a growing area of interest as investors seek to rebalance out of large cap equity exposure and to generate alpha from companies with less research coverage. Beyond the alpha potential, micro caps may provide diversification benefits due to their lower correlation to large cap equities.”

FTSE Russell has recently launched the FTSE Global Micro Cap Index Series to help investors measure the performance of the smallest segment of the global investable equity market, rounding out global small cap and total cap allocations as international markets continue to grow and evolve. Read “Hunting for alpha beyond global small cap equities,” a new report from Catherine Yoshimoto, for deeper insights into micro cap performance.


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