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Index IDEA: Small caps in focus; FTSE Russell & Steven DeSanctis from Jefferies & Company

For the second quarter as of June 15, the Russell 2000 Index, a measure of US small cap stocks, has performed higher than the Russell 1000 Index, a measure of US large cap stocks. However, the Russell 2000 Index has fallen by 9% since the completion of the last Russell Indexes reconstitution on Friday, June 26, 2015.

Steven DeSanctis, SMID Cap Strategist at Jefferies & Company:
“While the underperformance of US small caps relative to large caps in the past year has narrowed the valuation gap between the two, US equity markets in general still appear stretched from a valuation standpoint. And while a number of signs of US economic improvement have helped small cap stocks to a certain extent in recent months, we continue to see downward earnings pressure. Looking ahead, in my view, volatility in small caps may continue as a result of global uncertainty from Brexit, to the Fed and interest rates to the US presidential election cycle.”

Market participants are focused on the Russell indexes in the coming weeks, as FTSE Russell prepares for its annual Russell US indexes reconstitution. At reconstitution, the entire Russell family of global indexes, including the Russell 1000 Index and Russell 2000 Index, are rebalanced to ensure that the indexes continue to accurately reflect the market.

Expected index changes at this year reflect a shrinking US equity market. The breakpoint between the Russell 1000 and 2000 Indexes is expected to decrease to $2.9 billion, down 15% from last year, the smallest small cap stock is expected to be 25% smaller at a $132.9 million market capitalization and the largest small cap stock is expected to have a $3.9 billion market capitalization (above the breakpoint due to banding), 9% smaller than last year’s biggest small cap. 

As part of reconstitution, which concludes at US market close on Friday, June 24, composition, ranges and breakpoints between US large and small-cap stocks will be adjusted to reflect the current market environment.

For more information, visit the Russell US indexes and Russell US indexes annual reconstitution pages on our website.

Source: FTSE Russell Indexes, data as of June 15, 2016. Past performance is no guarantee of future results. Please see the disclaimer for important legal disclosures.


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FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

Views expressed by Steven DeSanctis are as of June 15 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell Microcap® Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets.


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