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Research & Insights

Factor exposure indexes - Value factor

1. Summary

The value effect is one of the most studied market anomalies [2-5]. The value effect or value premium refers to the tendency of stocks with lower valuation ratios to earn above average returns over the long run. For example, the cross-sectional variation of stock returns across countries can be partly explained by a global value factor [6]. Such a value effect has been observed across many different markets, regions and sample periods [1].

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Benefits of fundamentally weighted indexes in less efficient markets

Key benefits:

  • Historically delivered excess index return over time relative to the market cap-weighted counterpart in all global market segments, with the greatest outperformance in the least-efficient markets.
  • Historically achieved improved risk-adjusted index returns and greater upside returns than downside losses, with moderate tracking error relative to the cap-weighted counterpart.
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The Russell 2000® Index: 30 years of small cap

  • Russell Investments introduced the Russell 2000 Index in 1984 as the first small cap benchmark.
  • The Russell 2000 has since been widely adopted by both institutional and retail investors for measuring performance in the small cap U.S. equity market, due to its accurate, comprehensive methodology.
  • A large body of research has documented the potential benefits of including small cap stocks within a diversified, global, multi-asset-class portfolio.
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