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Index IDEA: Russell Stability Indexes Show Flight to Quality Amid Volatility

Index IDEA: Russell Stability Indexes Show Flight to Quality Amid Volatility

As global equity markets rode a roller coaster of volatility to start the new year, US stocks turned down sharply,  reflected by an 8.2% decrease for the US large-cap Russell 1000® Index and an 11.3% decrease for the US small-cap Russell 2000® Index year-to-date as of January 15.

And, while there have been few bright spots for investors in the global equity markets year-to-date, analysis by FTSE Russell shows that indexes including stocks weighted according to higher quality and lower volatility characteristics have held up well relative to their market capitalization weighted peers amid recent market volatility as well as over the longer term.

FTSE Russell examined performance for the Russell 1000® Defensive Index and Russell 2000® Defensive Index relative to the Russell 1000® Index and Russell 2000® Index, respectively, for January to-date as well as the one, three and five year periods ended January 15. Defensive-oriented stocks have led in all time periods as represented by the Russell Stability Indexes. Furthermore, a similar and even more consistent pattern appears when viewing defensive index performance in the emerging markets equity arena, as illustrated in the chart below.

Catherine Yoshimoto, Senior Index Product Manager, FTSE Russell:

“The Russell Stability Index Series is designed to segment market indexes based on a combination of stability factors. The more stable half of the indexes is called ‘defensive’ and the less stable half is called ‘dynamic.’ These distinguishing factors focus on relative quality and include debt to equity ratio, return on assets, earnings variability and total return volatility. And while there may be few havens for investors during this period of heightened market volatility, investors now have access to a more powerful set of indexes to help them better understand market dynamics in up as well as down markets and therefore to make more informed investment decisions.”

According to a FTSE Russell 2015 survey of retail financial advisors in the United States, the top three motivating reasons for financial advisors behind using index-based products were for help in pursuing downside protection in bad markets (62%), lowering volatility (53%) and increasing alpha (49%).

 

© 2016 London Stock Exchange Group companies.

London Stock Exchange Group companies includes FTSE International Limited (“FTSE”), Frank Russell Company (“Russell”), MTS Next Limited (“MTS”), and FTSE TMX Global Debt Capital Markets Inc (“FTSE TMX”). All rights reserved.

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Views expressed by Catherine Yoshimoto are based on information as of January 19, 2016, are subject to change and do not necessarily reflect the views of FTSE Russell or the London Stock Exchange Group. 

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