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Index IDEA: Small cap pullback?

While December thus far has seen a pull back for US small cap stocks as evidenced by a 1.5% decline for the US small cap Russell 2000® Index, researchers at FTSE Russell recently gave investors reason for optimism.

FTSE Russell senior index research director Tom Goodwin provided research on US small caps, putting the asset class in current and historical context to help investors focus on the big picture.

Index returns picture: Riding the Trump wave

“The Russell 2000 Index has a return of nearly 27% since the US presidential election last November, outperforming other major US cap tiers,” said Goodwin. “And this is without the benefit of the new administration having passed any significant new legislation.”

Goodwin also examined small cap cycles – both up and down – since 1978 to place the current Russell 2000 Index uptrend of 31% (annualized) and 63.5% (absolute) in 464 trading days since February 11, 2016 in historical context. “The 11 small cap up cycles since 1978 saw a median return of 106.8% over a median period of 698 trading days,” said Goodwin. "This suggests there is still room on the upside for the index.”

Watch the vital signs

In addition to the performance context, Goodwin cites a number of additional supporting stats for US small caps. “While some investors are concerned about potentially high valuations for US small caps in this extended bull market for US stocks, the current price-to-book ratio for the Russell 2000 Index is nowhere near its all-time high. In addition, implied volatility for US small caps as measured by the CBOE Russell 2000 Volatility IndexSM is at its lowest point since the Index was launched in 2004.” 

Learn more about the Russell 2000 Index.

 

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Source: FTSE Russell. Data as of December 11, 2017. Past performance is no guarantee of future results.

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Views expressed by Tom Goodwin of FTSE Russell are as of December 13 and subject to change.. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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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.

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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. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and no member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking statements. 

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