Small Cap, Big Difference
Small cap stock indices often diverge in performance due to index methodology decisions.
Indices are samplings of the market and may differ substantially among index providers based on differences in construction methodology. Nowhere is that more evident than in US small cap stocks. The spread in returns between the best and worst performer among three major indices—S&P SmallCap 600 Index, Russell 2000 Index, and CRSP US Small Cap Index—has averaged 4.9% per year over the past two decades. This gulf in returns has even crested double digits a couple of times.
The chart shows randomness in the winning index year to year. All three indices have taken their turn as the top and bottom performer. None stands out as a “better” way to capture small caps. Funds tracking any of these indices may leave returns on the table due to indexing constraints, such as arbitrary rebalancing frequency and lack of a daily process.
EXHIBIT 1
Three’s Company
Annual index returns, 2004–2023
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RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
CANADA
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Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
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