New SMALL CAP PERSPECTIVES - FTSE Russell · 2019. 1. 10. · FTSE Rssell. Small Cap Perspectives: Russell 2000 ® Index Quarterly Analysis. 03. Size • Positive performance trends

RUSSELL 2000® INDEX QUARTERLY ANALYSIS

SMALL CAP PERSPECTIVES

September 2017

01FTSE Russell | Small Cap Perspectives: Russell 2000® Index Quarterly Analysis

Market Recap Commentary – Third Quarter 2017

1 “US Rapid Response” Capital Economics, October 27, 20172 “US Rapid Response” Capital Economics, October 30, 20173 FOMC Statement, September 20, 2017

The US economy and The FedThe economy shook off the intense hurricane season and posted an annualized GDP gain of 3.0% in the third quarter, well above the 2.5% consensus forecast.1 Consumption spending increased by 2.4% in the third quarter, down slightly from the 3.3% gain in the second quarter, but slightly better than many forecasters were expecting. Third quarter numbers were helped by a 14.7% jump in the purchase of new automobiles following hurricane-related damage to approximately 300,000 vehicles. Other contributions included an 8.6% increase in business equipment spending and a 2.3% gain in exports.2 Unemployment and inflation have remained low. GDP growth is currently tracking at 2.1% annualized for all of 2017.

With the relatively sanguine third quarter economic performance, the Federal Reserve Open Market Committee saw no reason to change course. It maintained the target range for the federal funds rate at 1.0% to 1.25%. The stance of monetary policy remained “accommodative,” supporting a return to the target inflation rate of 2.0%. The “balance sheet normalization program” (gradual unraveling of quantitative easing) began in October as previously announced.3

The small cap bull market: continue to extend or soon to be extinguished?The US stock market has been enjoying a bullish run. The Russell 2000® Index in particular had a 20.7% return over the 12 month period ending September 29, 2017. That is a bit more than its larger cap brethren, the Russell 1000® Index, which posted a 18.5% return over the same period. This expansion has been going on for some time now, and there is growing concern that it cannot go on forever and a correction may soon be at hand. We took a look at some statistics to help put it into perspective.

The most common concern one hears is that markets are “overvalued.” So, we examined two well-known measures of valuation for the Russell 2000 Index and compared them over time. Figure 1 shows monthly price-to-book ratios (P/B) going back to 1986. The level as of September 29, 2017 was at 2.42, which is indeed above the historical average of 2.07 (blue line). But current P/B is still within a band of one standard deviation (dashed blue lines), which encompasses about two thirds of the historical P/B values. This pattern is far from the historical highs of the late 1990s when P/B was above 3.

Figure 1: Monthly Price-to-book Ratio (P/B) for the Russell 2000 Index since 1986

1.0

1.5

2.0

2.5

3.0

3.5

P/BMean+1 Standard Deviation

–1 Standard Deviation

Dec

-86

Dec

-87

Dec

-88

Dec

-89

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Sep

-17

Source: FTSE Russell. Data from December 31, 1986 to September 29, 2017. Past performance is no guarantee of future results. Please see the end for important legal disclosures.


We also took a look at the price-to-earnings ratio (P/E), another well-known measure. This formulation of P/E uses actual one-year earnings instead of forecasted earnings, and it excludes negative earnings to reduce the impact of outliers. Figure 2 shows that, as with P/B, P/E is above its historical average but also within a one standard deviation band. However, the chart also indicates that historically high levels were reached fairly recently (in 2015 and 2017), which could be concerning.

To gain additional insight we reformulated P/E as its inverse, earnings yield E/P. We also adjusted for inflation by subtracting the previous year’s rate of CPI inflation, since unadjusted earnings yield in a high inflation period cannot be directly compared with unadjusted earnings yield in a low inflation period, as we have now. This produced a time series of real earnings yield for the Russell 2000 Index, shown in Figure 3. The all-time P/E highs of 2015-2017 would have translated into all-time lows of E/P without an adjustment for inflation. Once that adjustment for inflation is made, real earnings yield does not look extraordinarily low in the recent past. The current real earnings yield of 2.8% is only slightly below the historical average of 3.1%.

Finally, building on previous research published by FTSE Russell4, we took a look at where this small cap bull market is compared to bull markets of the past. If we define the duration of a bull market as the time between the bottom of a greater-than-20% correction and the beginning of the next greater-than-20% correction, then the beginning of the current bull market can be placed at February 16, 2016. To the end of the third quarter, September 30, 2017, the current bull market for the Russell 2000 Index has run for 413 trading days and has achieved a 60.1% return during that time. In the previously cited research we documented that, going back to 1979, the median duration of a Russell 2000 Index bull market was 698 trading days and the median total return was 106.8%. So, based solely on history, the current bull market is not over-extended in either duration or total return.

In summary, current valuations of the Russell 2000 Index are indeed above their historical averages, but not extremely so. And compared to past small cap bull markets, the current one is relatively young. One has to emphasize the warning that past performance is no guarantee of future performance, of course. But these statistics can provide market participants with useful perspective.

Figure 2: Monthly Price-to-earnings Ratio (P/E) for the Russell 2000 Index since 1986Excluding negative earnings

10

12

14

16

18

20

22

24

P/E ex Neg Earnings

Dec

-86

Dec

-87

Dec

-88

Dec

-89

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Sep

-17

Mean+1 Standard Deviation


Source: FTSE Russell and FactSet. Data from December 31, 1986 to September 29, 2017. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Figure 3: Monthly Earnings Yield (E/P) for the Russell 2000 Index since 1986Excluding negative earnings and adjusted for inflation

0123456789

%

E/P x Negative Earnings - CPI

Dec

-86

Dec

-87

Dec

-88

Dec

-89

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Sep

-17

Mean+1 Standard Deviation


Source: FTSE Russell, FactSet and the Bureau of Labor Statistics. Data from December 31, 1986 to September 29, 2017. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Market Recap Commentary(continued)

4 T. Goodwin, “Where Are We in the Small Cap Cycle?” FTSE Russell, September 5, 2017 http://www.ftserussell.com/blog/where-are-we-small-cap-cycle


Size • Positive performance trends continued into the third quarter of the year for all

Russell US Indexes featured (Exhibit 1). Each index posted higher returns during the third quarter than the second quarter of the year, with the Russell Microcap® Index boasting the highest quarterly return (+6.7%) for the second quarter in a row, followed by the Russell 2000 Index with its +5.7% return.

• Year-to-date, all Russell US Indexes are in double-digit positive returns territory. The Russell Top 200® Index (+15.1%) and the Russell 3000® Index (+13.9%) ranked as the first and second highest performers.

• Comparing the twelve-month total returns, the Russell Microcap Index and the Russell 2000 Index have outperformed their mid and large-cap counterparts, posting +22.3% and +20.7% returns, respectively. Notably, even the index with the lowest return over the last twelve months has a double-digit return of +15.3%.

Style • During the third quarter of 2017, growth outperformed value in both the

large and small cap market segments for the third quarter in a row (Exhibit 2), boosting the twelve-month total returns for both the Russell 1000 Growth and Russell 2000 Growth Indexes above the +20.0% mark.

• Also echoing first and second quarter results, dynamic outperformed defensive in both the large and small cap market segments in the third quarter of 2017 (Exhibit 2). Comparing twelve-month total return results, defensive is still slightly ahead of dynamic in the small cap space thanks to the Russell 2000 Defensive Index’s strong 2016 fourth quarter result, but by a thin margin of just 1.5 percentage points.

FTSE Russell considers style along three dimensions: size, valuation and stability. The size dimension includes large cap and small cap as defined by market capitalization. Valuation includes growth and value measures. Stability provides a risk dimension to style by assessing a variety of factors related to quality and volatility exposures. Stability includes dynamic (companies with greater economic sensitivity and more variable earnings profiles) and defensive (companies with less economic sensitivity and more stable earnings profiles). For more information on Russell’s style definitions, please refer to the complete methodology document: Russell US Equity Indexes available at ftserussell.com.

Exhibit 1: Market Cap Segment PerformanceTotal Return (%) (as of 09/29/2017)

20173rd qtr

20172nd qtr

2017 1st qtr

2016 4th qtr

YTD as of

09/29/2017

12 Mos as of

09/29/2017

Russell 3000® Index 4.6 3.0 5.7 4.2 13.9 18.7

Russell Top 200® Index 4.9 3.2 6.4 4.1 15.1 19.8

Russell 1000® Index 4.5 3.1 6.0 3.8 14.2 18.5

Russell Midcap® Index 3.5 2.7 5.1 3.2 11.7 15.3

Russell 2500 Index 4.7 3.8 6.1 6.6 11.0 17.8

Russell 2000® Index 5.7 2.5 2.5 8.8 10.9 20.7

Russell Microcap® Index 6.7 3.8 0.4 10.0 11.2 22.3

Exhibit 2: Style PerformanceTotal Return (%) (as of 09/29/2017)

20173rd qtr

20172nd qtr

2017 1st qtr

2016 4th qtr

YTD as of

09/29/2017

12 Mos as of

09/29/2017

Russell 1000 Growth Index 5.9 4.7 8.9 1.0 20.7 21.9

Russell 1000 Value Index 3.1 1.3 3.3 6.7 7.9 15.1

Russell 2000 Growth Index 6.2 4.4 5.3 3.6 16.8 21.0

Russell 2000 Value Index 5.1 0.7 -0.1 14.1 5.7 20.5

Russell 1000 Defensive Index 3.9 2.7 5.6 2.2 12.6 15.0

Russell 1000 Dynamic Index 5.1 3.5 6.5 5.4 15.7 22.0

Russell 2000 Defensive Index 5.0 1.8 0.5 13.2 7.3 21.5

Russell 2000 Dynamic Index 6.3 3.2 4.6 4.6 14.8 20.0

Source: FTSE Russell, data as of September 29, 2017. Past performance is no guarantee of future results. Please see important legal disclosures at the end of this report.

Market performance


Small cap performance analysis • After an impressive 2016 total return of +21.3%, the Russell 2000 Index

continues on track toward another strong calendar year, with a year-to-date return of +10.9% as of September 29, 2017 (Exhibit 4).

• The Russell 2000 Index value reached the 7000 mark for the first time in its history on July 19. It continued to break its own record several more times in July and again in September. During the last six trading days of September 2017, new record high index values posted each day, with the September 29th value becoming the index’s new high mark of 7310 (Exhibit 5).

• Comparing the third quarter performance of the Russell 2000 Index to that of the Russell 1000 Index, small cap (+5.7%) outpaced large cap (+4.5%). While the year-to-date results of the two indexes show the Russell 1000 Index outperforming the Russell 2000 Index by over three percentage points, the twelve-month results for the period ending September 29, 2017 display small cap outperforming large cap — an indication that calendar year results for 2017 could result in small cap outperforming large cap for the second year in a row (Exhibit 6).

%

RUSSELL 2000 INDEX RUSSELL 1000 INDEX

Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

-60

-40

-20

020

40

60

80

100015002000250030003500

650060005500500045004000

70007500

Total ReturnTrough to Present

03/09/2009–09/29/2017 +388.8%

Total ReturnPre Recession Peak to Peak

07/13/2007–09/29/2017+100.9%

Mar

-08

Sep

-08

Mar

-07

Sep

-07

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Jun-

16

Jan-

08

Jun-

08

Jan-

07

Jun-

07

Jan-

09

Jun-

09

Jan-

10

Jun-

10

Jan-

11

Jun-

11

Jan-

12

Jun-

12

Jan-

13

Jun-

13

Jan-

14

Jun-

14

Jan-

15

Jun-

15

Jan-

16

Jun-

17M

ar-1

7Ja

n-17

Sep

-16

Sep

-17

Exhibit 3: 12-Month Rolling ReturnsTotal Return (%) – 10 Years (as of 09/29/2017)

Exhibit 6: PerformanceTotal Return (%) (as of September 29, 2017)

Exhibit 5: Russell 2000 Index PerformanceTotal Return (January 2007 –September 2017)


30003500400045005000550060006500700075008000

Mar

-13

Nov

-13

Jul-

17

May

-17

Mar

-17

Jan-

17

Sep

-17

Sep

-13

Jan-

13

Jul-

13

2013+38.8%

2014+4.9%

2015-4.4%

2016+21.3%

YTD2017

+10.9%

May

-13

Mar

-14

Nov

-14

Sep

-14

Jan-

14

Jul-

14

May

-14

Mar

-15

Nov

-15

Sep

-15

Jan-

15

Jul-

15

May

-15

Mar

-16

Nov

-16

Sep

-16

Jan-

16

Jul-

16

May

-16

Exhibit 4: Russell 2000 Index PerformanceCalendar Year Total Return (January 2013 – September 2017)

3rd Qtr YTD 1 Yr 3 Yr 5 Yr 10 Yr 2012 2013 2014 2015 2016

Russell 2000 Index 5.7 10.9 20.7 12.2 13.8 7.8 16.4 38.8 4.9 -4.4 21.3

Russell 1000 Index 4.5 14.2 18.5 10.6 14.3 7.6 16.4 33.1 13.2 0.9 12.1

2017 Annualized Calendar Year


Relative returns analysis

• Exhibits 7 and 9 display the 2017 year-to-date and the 2014-2016 calendar year total returns of the indexes that represent the size and style segments of the US market. Continuing the trend that began during at the start of this year, growth is outpacing value across large, mid and small cap indexes year-to-date as of September 29, 2017.

• Comparing year-to-date index performance across the growth market size segments, the Russell 1000 Growth Index is outperforming its mid cap growth and small cap growth index counterparts.

• Large cap is also outperforming mid and small cap on the value end of the spectrum year-to-date, with the Russell 1000 Value Index posting the leading result as compared to the small cap value and mid cap value indexes.

• Exhibit 8 compares the 10-year growth of the Russell 2000 Index to that of the Russell 1000 Index. The small cap index’s strong 2016 helped to temporarily narrow the distance between the two, but large cap can has outperformed small cap year-to-date as of September 29, 2017, closing the gap created in 2016.


Exhibit 9: Russell Style Index PerformanceTotal Return (%) (as of 09/29/2017)

Index 2017 YTD 2016 2015 2014

Russell 1000 Growth Index 20.7 7.1 5.7 13.1

Russell Midcap Growth Index 17.3 7.3 -0.2 11.9

Russell 2000 Growth Index 16.8 11.3 -1.4 5.6

Russell 1000 Index 14.2 12.1 0.9 13.2

Russell Midcap Index 11.7 13.8 -2.4 13.2

Russell 2000 Index 10.9 21.3 -4.4 4.9

Russell 1000 Value Index 7.9 17.3 -3.8 13.5

Russell Midcap Value Index 7.4 20.0 -4.8 14.8

Russell 2000 Value Index 5.7 31.7 -7.5 4.2


0

50

100

150

200

250

Sep-07 Sep-10 Sep-16Sep-15Sep-14Sep-13Sep-12Sep-11 Sep-17Sep-09Sep-08

Exhibit 8: Performance — Growth of a unitTotal Return (%) — 10 Years (as of 09/29/2017)

Exhibit 7: Russell Style Index PerformanceTotal Return (%) (as of 09/29/2017)

2017 YTD

Value Core Growth

Large 7.9 14.2 20.7

Mid 7.4 11.7 17.3

Small 5.7 10.9 16.8

2016

Value Core Growth

Large 17.3 12.1 7.1

Mid 20.0 13.8 7.3

Small 31.7 21.3 11.3

2014

Value Core Growth

Large 13.5 13.2 13.1

Mid 14.8 13.2 11.9

Small 5.7 4.9 5.6

2015

Value Core Growth

Large -3.8 0.9 5.7

Mid -4.8 -2.4 -0.2

Small -7.5 -4.4 -1.4


Volatility and risk metrics • The CBOE Russell 2000 Volatility IndexSM (RVXSM) measures the expected

volatility implied by option prices for the Russell 2000 Index. The RVX reached its third quarter high of 19.6 on August 11, 2017 (Exhibit 10) but then dipped to its lowest level in the ten years displayed (11.8) on September 15, 2017. It then settled into a range between 12.1 and 14.0 for the remainder of the quarter. Compared to the 10-year average of 25.7, volatility remains exceptionally low.

• Exhibit 11 displays the daily total returns of the Russell 2000 Index. The highest third quarter daily return of 1.9% occurred on September 27, while the largest dip occurred on August 17 (-1.8%). The third quarter’s median daily return of 0.14% is similar in comparison to the 20-year median of 0.08%.

• During the third quarter of 2017, the 12-month rolling standard deviation of the Russell 2000 Index and the Russell 1000 Index (Exhibit 12) show the volatility of both indexes continuing along the downward trajectory that began mid-2016. Both indexes closed the quarter with figures lower than we’ve seen in over ten years. The Russell 2000 Index results remain well below its 10-year average of 24.1%.

Exhibit 10: Implied VolatilityCBOE Russell 2000 Volatility Index (RVX) — 10 Years (as of 09/29/2017)

Exhibit 11: Russell 2000 Index Daily ReturnsTotal Return (%) — 20 Years (as of 09/29/2017)

Standard Deviation (%) Return/Risk Ratio

1 Yr 3 Yr 5 Yr 10 Yr 1 Yr 3 Yr 5 Yr 10 Yr

Russell 2000 Index 13.2 16.2 15.7 25.7 1.5 0.7 0.9 0.3

Russell 1000 Index 7.4 12.7 12.0 20.4 2.4 0.8 1.2 0.4

Exhibit 13: Risk Characteristics Annualized (as of 09/29/2017)

Exhibit 12: 12-Month Rolling Standard Deviation (%)10 Years (as of 09/29/2017)

-15

-10

-5

0

5

10

15

2016201520142013201220112009200820072006200520042003200220012000199919981997 2017

9.3

-11.8

%


0

10

20

30

40

50

60

Sep-07 Sep-16Sep-15Sep-14

Russell 2000 Index10 Yr Avg+24.1%

Sep-13Sep-12Sep-11Sep-10Sep-09Sep-08 Sep-17

Source: CBOE. CBOE®, Chicago Board Options Exchange®, CBOE Volatility Index®, and VIX® are registered trademarks of Chicago Board Options Exchange, Incorporated (CBOE). RVX is a service mark of CBOE. The Russell 2000 Index is a registered trademark of The Frank Russell Company, used under license. This data is believed to be correct but CBOE does not guarantee the accuracy of the data and will not be held liable for consequences of its use.


010203040

90

RVX

Inde

x V

alue

80706050

100

Sep-07 Sep-08 Sep-17Sep-15Sep-13Sep-11Sep-09 Sep-10 Sep-12 Sep-14 Sep-16

10 YrAverage

25.7


Small cap asset flows

• For the fourth consecutive quarter, the total AUM in ETFs and Mutual Funds tracking small cap indexes reached a record high. Up over $70 Billion since the end of 2016, assets totaled $757.9 Billion as of September 29, 2017 (Exhibit 14).

• Exhibit 15 displays monthly flows of assets into small cap products, distinguishing between ETFs and Mutual Funds. July marked an outflow of assets from ETFs, while August and September saw inflows into that asset class. All three months of the third quarter of 2017 saw outflows from Mutual Funds, a pattern that has been occurring since March of 2017.

• Exhibit 16 displays the total monthly flow of assets (ETFs and Mutual Funds combined). September’s result posted the first inflow in seven months, which tells us that the continued growth we are seeing in the AUM of products tracking small cap indexes is more attributable to the positive performance of the index-tracking products than it is to inflows of assets into the products.

Exhibit 14: Quarterly Small Cap Total Assets ($ Billions)10 Years (As of 09/29/2017)

Exhibit 15: Monthly Small Cap Asset Flows ($ Billions)Estimated Net Flows — One Year (as of 09/29/2017)

Exhibit 16: Monthly Small Cap Asset Flows ($ Billions)Estimated Net Flows — One Year (as of 09/29/2017)

Source: Morningstar Direct. Total assets and estimated net flows are for all U.S.-domiciled open-end mutual funds (excluding money market funds and funds-of-funds) and Exchange Traded Products (ETPs) categorized as small cap, small cap growth or small cap value by Morningstar.

0

100

200

300

400

500

600

700

800

$

Bill

ions

Sep-17Sep-16Sep-15Sep-14Sep-13Sep-12Sep-11Sep-10Sep-09Sep-08

$

Oct-16 Sep-17Aug-17Jul-17Jun-17May-17Apr-17Mar-17Feb-17Jan-17Dec-16Nov-16

Bill

ions

Total Small Cap MF Flow Total Small Cap ETF Flows

-6

-4

-2

0

2

4

6

8

10

12

-7

10

-1

-3

-5

3

5

7

9

11

$

Jun-17May-17Apr-17Mar-17Feb-17Jan-17Dec-16Nov-16Oct-16 Jul-17 Sep-17Aug-17

Bill

ions




Russell 2000 Index sector weights

• Financial Services (Exhibit 17) remains as the sector most heavily represented in the Russell 2000 Index with a weight of 25.9%, followed by Health Care (15.5%), Producer Durables (13.9%) and Technology (13.9%).

• The largest increase in sector representation since the second quarter report occurred in the Health Care sector, which grew from 14.9% as of June 30, 2017 to 15.5% as of September 29, 2017 (Exhibit 18), boosted in part by its 8.0% total return for the quarter (Exhibit 22). The largest decrease in weight as compared to last quarter occurred in Financial Services, as its representation in the index shifted from 26.3% to 25.9% over the same period.

Sep-17Sep-16Sep-15Sep-14Sep-13Sep-12Sep-11Sep-10Sep-09Sep-08Sep-070

10

20

30

40

50

60

70

80

90

100%

Energy

FinancialServices

Producer Durables

Materials &Processing

Technology ConsumerDiscretionary

Utilities

Health Care

Consumer Staples

Exhibit 18: Historical Sector Weightings (%)10 Years (as of 09/29/2017)

Exhibit 17: Current Sector Weightings (%)as of 09/29/2017

2.3%3.5%4.6%

7.2%

13.2%

13.9%

13.9%

15.5%

25.9%

Materials & Processing

Financial Services

Utilities

Energy

Health Care

Technology

Producer Durables

Consumer Discretionary

Consumer Staples



Russell 2000 Index sector attribution analysis • All sectors posted positive returns during the third quarter of 2017, with results

ranging from Producer Durables’ return of +8.8% to Consumer Staples’ +2.4% result. (Exhibit 22).

• Shown in Exhibit 19, Health Care made the largest contribution (+1.3%) to the quarterly return of the Russell 2000 Index, followed by Producer Durables (+1.2%) and Financial Services (+1.0%).

• Exhibit 20 provides a more granular view of what contributed to the overall performance of the small cap market segment by listing the industries with the largest positive contribution to the index’s quarterly return. Biotechnology, the second greatest contributor last quarter, contributed the most as of the third quarter with its 1.0% contribution to return. Diversified Banks and Computer Services Software & Systems were also top contributors to the overall return of the Russell 2000 Index.

• Conversely, Exhibit 21 lists the industries with the largest negative impact on the quarterly return of the Russell 2000 Index. Restaurants, Health Care Equity REITs and Health Care Facilities were the largest drags – an interesting point because at the sector level, Health Care had the largest positive contribution to the Russell 2000 Index performance (thanks to Biotechnology).

Exhibit 19: Sector Contribution to Return (%)Third Quarter 2017 (as of 09/29/2017)

Exhibit 20: Top Industry Contributors (%)Third Quarter 2017 (as of 09/29/2017)

Exhibit 21: Bottom Industry Contributors (%)Biggest detractors – Third Quarter 2017 (as of 09/29/2017)

%

HealthCare

TechnologyProducerDurables

FinancialServices

ConsumerDiscretionary

Utilities ConsumerStaples

Materials &Processing

Energy

-0.1

0.3

0.1

0.7

0.9

0.5

1.1

1.3

1.5

Financial Services

Health Care

TechnologyProducer Durables

Consumer Discretionary

Materials & Processing

Utilities EnergyConsumer

Staples

Russell 2000 Index Weight (%) 25.9 15.5 13.9 13.9 13.2 7.2 4.6 3.5 2.3

Total Return (%) 4.2 8.0 4.8 8.8 5.0 6.3 3.3 5.4 2.4

Contribution to Return (%) 1.0 1.3 0.7 1.2 0.6 0.5 0.2 0.2 0.1

Exhibit 22: Sector ReviewThird Quarter 2017 (as of 09/29/2017)

Biotechnology Machinery:Industrial

ProductionTechnology Equipment

Banks: Diversified Computer ServicesSoftware & Systems

%

0.0

0.2

0.4

0.6

0.8

1.0

1.2 %

-0.14

-0.12

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

Restaurants Equity REIT: Health Care

Health Care Facilities

Utilities: Telecommunications

ComputerTechnology



Russell 2000 Index fundamental characteristics • With the exception of a slight dip in July, the I/B/E/S 1-year forecasted price-

to-earnings ratio (P/E) of the Russell 2000 Index continued on the incline it had begun at the beginning of 2017, closing the third quarter of the year at 29.8 – its highest mark in the 12-month period shown (Exhibit 23).

• Profitability, as measured by five-year return on assets (ROA) average has lingered just below the 4.0% mark for the Russell 2000 Index after its June 2017 drop (Exhibit 24). In comparison, the five-year ROA average of the Russell 1000 Index as of the end of the quarter was nearly 6 percentage points higher at 9.3% (Exhibit 26).

• Five-year forecasted earnings growth for companies in the Russell 2000 Index continued on a steady decline during the third quarter, with a September 29, 2017 result of 6.4% (Exhibit 25).

Exhibit 23: Price-to-earnings Ratio (P/E)I/B/E/S 1-year forecasted — Last 12 months as of 09/29/2017

Exhibit 24: Return on Assets (ROA)Trailing 5 Years (%) — Last 12 months as of 09/29/2017

Exhibit 25: Earnings GrowthI/B/E/S 5-year forecasted EPS — Last 12 months as of 09/29/2017

20Aug-17Jul-17Jun-17May-17Apr-17Mar-17Feb-17Jan-17Dec-16Nov-16

25.3

28.829.4

Oct-16 Sep-17

22

24

26

28

30

24.5 25.025.5 25.9 25.6

27.1 27.027.8

29.8

Valuation Growth Quality

P/E - I/B/E/S 1 Yr Forecasted

Price/Book Price/Cash FlowSales per Share Growth

- 5 YrLong Term Forecasted

Growth - I/B/E/S MedianROA - 5 Yr Avg Debt/Equity Dividend Yield

Russell 2000 Index 29.8 2.4 12.8 4.7 6.4 3.9 0.7 1.3

Russell 1000 Index 18.9 3.2 12.6 5.6 9.9 9.3 0.9 1.9

Exhibit 26: Fundamental CharacteristicsMarket Snapshot (as of 09/29/2017)

3.5Aug-17Jul-17Jun-17May-17Apr-17Mar-17Feb-17Jan-17Dec-16Nov-16

4.3 4.44.24.2 4.2 4.2 4.2

4.3

3.9 3.9 3.9 3.9

Oct-16 Sep-17

4.0

4.5

5.0

4Aug-17Jul-17Jun-17May-17Apr-17Mar-17Feb-17Jan-17Dec-16Nov-16

7.77.0 6.9 7.0 7.1 7.3 7.2 7.3 7.2 7.0

6.76.4

Oct-16 Sep-17

6

8

10



Disclaimer© 2017 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of FTSE Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document 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.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

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.

Morningstar is the copyright owner of the Morningstar information used by FTSE Russell to calculate the data included in this presentation. All rights reserved 2017. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.


FTSE Russell is a leading global index provider creating and managing a wide range of indexes, data and analytic solutions to meet client needs across asset classes, style and strategies. Covering 98% of the investable market, FTSE Russell indexes offer a true picture of global markets, combined with the specialist knowledge gained from developing local benchmarks around the world.

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. $12.5 trillion is currently benchmarked to FTSE Russell indexes. For over 30 years, leading asset owners, asset managers, ETF providers and investment banks have chosen FTSE Russell indexes to benchmark their investment performance and create investment funds, ETFs, structured products and index-based derivatives. FTSE Russell indexes also provide clients with tools for asset allocation, investment strategy analysis and risk management.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on index innovation and customer partnership applying the highest industry standards and embracing the IOSCO Principles. FTSE Russell is wholly owned by London Stock Exchange Group.

For more information, visit ftserussell.com.

To learn more, visit ftserussell.com; email [email protected]; or call your regional Client Service Team office:

EMEA+44 (0) 20 7866 1810

North America+1 877 503 6437

Asia-PacificHong Kong +852 2164 3333Tokyo +81 3 3581 2764Sydney +61 (0) 2 8823 3521

About FTSE Russell

Documents

New SMALL CAP PERSPECTIVES - FTSE Russell · 2019. 1. 10. · FTSE Rssell. Small Cap Perspectives: Russell 2000 ® Index Quarterly Analysis. 03. Size • Positive performance trends