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The Russell 2500 Index combines a portion of midcap stocks with small cap stocks – forming a “SMID” (small/mid) cap segment of stocks from the Russell 3000® Index. Midcap has been one of the highest performing segments of the Russell 3000 Index and repositioning these stocks – which by way of their market values receive larger weights within the Russell 2500 Index than in the Russell 1000® Index – can result in significant impacts in terms of index volatility and returns.

Key findings from the broader research paper: The Russell 2500 Index: Running the anchor leg

  • Repositioning midcaps so they are grouped with small caps to form a SMID cap segment of US equities in the Russell 2500 Index has resulted in meaningful differences in index performance and volatility as compared to the Russell 1000 Index.
  • Compared to a large cap only index, SMID caps have historically been tilted more to value as measured by P/B (price-to-book value), and have been characterized by more positive earnings surprises.
  • Adding SMID cap stocks to an index comprised of large cap stocks, such as a hypothetical 30% Russell 2500 Index – 70% Russell Top 200® Index combination we proposed in the research paper, creates an index with a greater diversification of US equities.
  • Mixing the large cap and SMID cap size segments creates a combination that, on a hypothetical basis, improved the risk-adjusted index returns over the period evaluated.

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