Russell Stability Indexes - FTSE · Russell Stability Indexes Performance of Russell 1000 ® combined style indexes in various market conditions. Insights. FTSE Russell. March 2016

Russell Stability Indexes Performance of Russell 1000® combined style indexes in various market conditions

Insights

FTSE Russell March 2016

Key points • Russell’s combined style indexes – the Russell Growth-Defensive,

Value-Defensive, Growth-Dynamic and Value-Dynamic indexes – represent distinct investment styles, have different characteristics and perform differently in various market environments.

• Historically, the Dynamic index variants generally demonstrated higher index returns than the Defensive index variants in bull markets; in bear markets, the Defensive index variants generally demonstrated higher index returns than the Dynamic index variants. This bull/bear market performance pattern was more consistent for Defensive and Dynamic indexes than for Growth and Value indexes.

• In rising U.S. interest rate environments, as measured by the 10-year U.S. Treasury rate, performance of the four combined style indexes was mixed, pointing to different factors driving these markets. In the four rising-rate periods we examined over 19.5 years, the performance leader was either the Growth-Dynamic or the Value-Dynamic index. The Value-Defensive index lagged the other combined style indexes in three out of the four periods examined. In each period, all four combined style indexes outperformed the Barclays U.S. Aggregate Bond Index, which measures the U.S. bond market.

FTSE Russell | Russell Stability Indexes: Performance of Russell 1000® combined style indexes in various market conditions 2

IntroductionIn 2010, Russell introduced its Stability (Defensive/Dynamic) Index Series to complement its valuation (Growth/Value) and size (Large/Small) indexes. The inclusion of Stability, the Russell-denoted “third dimension of style,” enhanced investors’ ability to more precisely identify risks and opportunities in equity markets.1 The Stability Indexes are constructed using a mix of Quality and Volatility characteristics, with more stable companies being classified as Defensive and less stable companies as Dynamic.2

In 2012, Russell integrated the Defensive/Dynamic indexes with the Growth/Value indexes to further expand the Stability dimension, introducing the combined style indexes: Growth-Defensive, Value-Defensive, Growth-Dynamic and Value-Dynamic (Figure 1).3

This paper provides a brief review of why Russell created the combined style indexes, how they have behaved in various market environments and how investors can benefit from using them. For the sake of brevity, the scope of this research is limited to the U.S. large cap segment (measured by the Russell 1000 Index).4 However, the Russell combined style indexes also cover additional U.S. size segments.

Figure 1: Matrix of the Russell 1000 combined style indexes in relation to the standard Defensive/Dynamic and Growth/Value indexes

Russell 1000Growth

Russell 1000 Value

Russell 1000 Dynamic

Russell 1000Defensive

Russell 1000

Russell 1000Growth-Dynamic

Russell 1000Growth-Defensive

Russell 1000Value-Dynamic

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1 See D. Hintz (2010), “The Third Dimension of Style: Introducing the Russell Stability Indexes,” Russell Research (December).2 Quality characteristics used in the construction of the Russell Stability Indexes are Earnings Variability, Leverage and Return on Assets. Volatility characteristics used are 52-week and 60-month historical standard deviation. For more information on the construction of the Russell Stability Indexes, please see the Construction & Methodology document, available at ftserussell.com.3 See D. Hintz and C. Yoshimoto (2013), “Gaining better market insight by combining Defensive/Dynamic with Growth/Value indexes,” Russell Research (February).4 Russell Stability Indexes are also available at global, regional, country and sector levels, which are available on distribution platforms such as FactSet, Bloomberg and Morningstar.

http://ftserussell.com


The origin of Stability, the risk dimension of style: Defensive and Dynamic indexesRussell developed its Defensive and Dynamic indexes in the Stability Index series, which focuses on the Russell-identified third dimension of style (Hintz 2010), on the basis of Russell’s observations of investment manager behavior through past market cycles. Russell recognized that managers often tend to invest in distinct, observable styles – more stable (Defensive) or more cyclically sensitive (Dynamic) styles – even while effectively tracking Growth or Value benchmarks.5

Russell (Feldman 2012) conducted extensive research that validated that this third dimension is the “risk dimension of equity style,”6 and validating as well the Defensive and Dynamic indexes’ ability to identify company risk.7 True to their design, the Defensive index variations tend to exhibit lower volatility, higher Sharpe ratios and a bias toward more established larger-cap names, while the Dynamic indexes tend to exhibit higher volatility, lower Sharpe ratios and a bias toward smaller-cap names.

The combined style indexes offer more targeted benchmarks based on manager investment styles: Some Growth managers may tend to focus more on investing in companies with Dynamic or Defensive characteristics. Similarly, Value managers may tend toward companies with either Dynamic or Defensive characteristics.

Figure 2 highlights the top 10 weights in each combined style index following 2015 reconstitution. Apple, the largest stock in the Russell 1000, is the top weight in both the Growth-Defensive (R1GDF) and Growth-Dynamic (R1GDY) indexes, because it is 100% growth and partially Defensive/Dynamic, as of 2015 reconstitution, due to a combination of Apple’s relatively high return on assets, low debt-to-equity and high stock-price volatility. Exxon Mobil is the top name in the Value-Defensive (R1VDF) index due to the company’s relatively high return on assets, low earnings variability and low debt to equity ratio, and the low volatility of its stock. Although Wells Fargo shifted fully to the Value-Defensive index as of 2014 reconstitution and remained fully Value-Defensive in 2015, due to relatively low earnings variability and low long-term stock volatility, several large banks – including JPMorgan Chase, Bank of America and Citigroup – remain fully in the Value-Dynamic (R1VDY) index, due to relatively low return on assets, high debt and high stock volatility.

5 See D. Hintz (2010), “The Third Dimension of Style: Introducing the Russell Stability Indexes,” Russell Research (December).6 The first and second dimensions are Large Cap/Small Cap and Growth/Value as depicted in the original two-dimensional style box.7 See B. Feldman (2014), “Stability is the Risk Dimension of Equity Style,” Journal of Investing (Fall).


Figure 2: Top 10 index weights as of June 30, 2015

Russell 1000 Value-Defensive % weight Russell 1000 Growth-Defensive % weightExxon Mobil 7.4% Apple 9.3%

Wells Fargo 5.6% Google8 5.1%

Berkshire Hathaway 5.0% Walt Disney 3.4%

Johnson & Johnson 5.0% Coca-Cola 2.7%

Procter & Gamble 4.5% Home Depot 2.6%

Pfizer 4.4% PepsiCo 2.4%

Chevron 3.9% Visa 2.3%

Cisco 3.0% Microsoft 2.0%

Merck & Co 2.9% Bristol-Myers Squibb 2.0%

Intel Corp 2.9% UnitedHealth Group 2.0%

Russell 1000 Value-Dynamic % weight Russell 1000 Growth-Dynamic % weightGeneral Electric 4.7% Apple 4.0%

JPMorgan Chase 4.4% Gilead Sciences 3.5%

Bank of America 3.1% Amazon.com 3.3%

Citigroup 2.9% Facebook 3.2%

Schlumberger 1.7% AbbVie 2.4%

AT&T 1.6% Verizon Communications 2.3%

Goldman Sachs 1.6% Celgene 1.9%

MEDTRONIC 1.5% Microsoft 1.8%

American International Group 1.4% BIOGEN 1.5%

Microsoft 1.2% eBay 1.5%

Source: FTSE Russell, data as at June 30, 2015.

Benefits of combined style indexes to the investment communityAs with the Growth/Value or Defensive/Dynamic indexes, the combined style indexes can be used to conduct manager research and benchmarking, as well as the basis of passive index-based investable products.

• A key driver in the development of the Russell Stability Indexes was the demand for greater granularity in benchmarking and for distinguishing managers with a different lens from Growth or Value. Managers within Growth or Value styles invested differently in varying market conditions (although these distinctions emerged more clearly in bubble and crash times, they have been observed consistently by Russell over the past 20 years9).

8 Weight of multiple share classes combined. As of June 2015 reconstitution, the Russell 3000E included multiple share classes in the index, if eligible.9 See Hintz (2010) for an overview of these manager observations from 1990 through 2010.


• Although the primary use case for these indexes was more targeted benchmarks for manager research, market participants have also implemented Defensive strategies using these index tools to offset the excess Dynamic exposure often favored by active managers.10 The combined style indexes can be used similarly, as tools to assist in targeting a narrower market segment or implementing investment views, either actively or passively, along the Growth and Value style dimension in conjunction with the Defensive and Dynamic style dimension.

• Investors may also simply use the combined style indexes as research tools to evaluate existing exposures to Defensive, Dynamic, Growth or Value styles, as well as the resulting investment risks and opportunities in changing market conditions.

Each combined style index represents a distinct investment style and performs differentlyAlthough the R1GDY index return increased significantly through the Tech bubble of the late 1990s, its performance after the 2000 Tech bubble crash has lagged that of the other combined style indexes and for the full 19.5-year, June 30, 1996 through December 31, 2015, period examined.11 This behavior is not unexpected, as at the time, the index had the largest exposure to the Technology sector among the four combined style indexes, as we will examine later in the paper.

The R1VDY index returns rose strongly in 2002–2007 before undergoing a significant decline during the Global Financial Crisis of 2007–2009. However, it subsequently rebounded and outperformed the R1VDF and R1GDY indexes for the full 19.5-year period ending December 2015. This behavior makes sense, as the index has the largest exposure to the Financial Services sector among the four combined style indexes.

By contrast, R1GDF and R1VDF index returns rose more steadily over the full period, with visibly lower volatility. The two Defensive index variants experienced smaller losses compared to their Dynamic counterparts during two significant periods: At a sector level, R1GDF had lower exposure to the Technology sector than R1GDY had during the Tech bubble crash, and R1VDF had lower exposure to the Financial Services sector than the R1VDY had during the Global Financial Crisis, particularly as of 2008 reconstitution.

10 See B. Collie and J. Osborn (2011), “Defensive equity: Is the market mispricing risk?” Russell Research (July).11 The inception date of the Russell Growth-Defensive, Value-Defensive, Growth-Dynamic and Value-Dynamic Indexes is October 17, 2012. The inception date of the Russell 1000 Index is January 1, 1984. Returns provided for each FTSE Russell Index may include data for periods prior to when each FTSE Russell Index was in live production. Hypothetical historical returns for these FTSE Russell indexes prior to the live production date are calculated using the same FTSE Russell methodology; however, application to the performance calculation may vary due to data sources, corporate actions and the availability of historical data with respect to certain securities.


Figure 3: Index performance, 6/30/1996–12/31/2015

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Source: FTSE Russell, data as at December 31, 2015. Past performance is no guarantee of future results. Certain returns shown reflect hypothetical historical performance. Please see the final page for important legal disclosures.

Over the entire 19.5-year period examined, R1VDF and R1GDF exhibited higher Sharpe ratios and lower downside risk than the Russell 1000, R1VDY or R1GDY indexes (Figure 4). Overall, R1GDF led the group’s performance, while R1GDY lagged. Both Dynamic indexes exhibited higher annualized standard deviation than the Defensive variants. Information ratios12 were positive for R1GDF and R1VDY, and slightly negative for R1VDF and R1GDY. Tracking error was highest for R1GDY, followed by R1VDF, R1VDY and R1GDF, indicating the indexes’ relative distance from the Russell 1000 Index’s performance.

R1GDY experienced the largest drawdown during the Tech bubble crash from April 2000 through September 2002; R1VDY followed during the Global Financial Crisis, from June 2007 through February 2009. The drawdown periods for R1VDF and R1GDF occurred during similar periods, with the R1VDF drawdown period beginning slightly later than the R1VDY, in October 2007, and R1GDF drawdown period beginning slightly later than the R1GDY, in September 2000. The drawdown period lasted the same number of months for the two Growth index variants, while the drawdown period for R1VDY lasted several months longer than that for R1VDF, with greater loss.

The down capture ratios were consistent with the lower downside risk observed for the Defensive index variants and higher downside risk observed for the Dynamic index variants. The up capture ratios were significantly higher for the Dynamic index variants; however, it may not be as notable over the longer term.

12 Information ratio is a measure of risk-adjusted return calculated as excess return divided by tracking error, or the standard deviation of excess return.


Figure 4: Performance statistics, 7/1/1996–12/31/2015 (indexes sorted highest to lowest Sharpe ratio13)

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Russell 1000 Value-Defensive 7.9 12.8 0.48 -0.01 8.9 -46.90

10/1/2007–2/28/2009 17 63.5 73.4

Russell 1000 Growth-Defensive 8.5 14.5 0.47 0.07 5.6 -45.22

9/1/2000–2/28/2003 30 83.1 89.4

Russell 1000 Index (Benchmark) 8.0 15.7 0.42 – – -51.13

11/1/2007–2/28/2009 16 100.00 100.00

Russell 1000 Value-Dynamic 8.3 19.2 0.39 0.04 6.5 -64.51

6/1/2007–2/28/2009 21 117.7 113.7

Russell 1000 Growth-Dynamic 5.8 23.1 0.26 -0.20 10.8 -75.59

4/1/2000–9/30/2002 30 143.5 123.7

Source: FTSE Russell and Morningstar Direct, data as at December 31, 2015. Past performance is no guarantee of future results. Certain returns shown reflect hypothetical historical performance. Please see the final page for important legal disclosures.

The combined style indexes’ risk/reward profiles are consistent with the lower beta the Defensive indexes have historically exhibited relative to the broad market and the Dynamic indexes (Figure 5). Although the Dynamic indexes experienced greater volatility and, in turn, lower Sharpe ratios than the Defensive indexes, their higher beta profile was also consistent with the indexes’ higher up capture ratios.

13 Sharpe ratio (arithmetic) is calculated as annualized total return minus the annualized return of the risk-free rate, as measured by 3-month U.S. Treasury bills, divided by annualized standard deviation. Up- and down-capture ratios are relative to the Russell 1000 Index and indicate how closely a portfolio tracks positive or negative benchmark returns. Each measure is calculated as the annualized return of a portfolio on only the set of days when the benchmark return was positive (negative) divided by the benchmark’s annualized return on the same set of days.


Figure 5: Average 5-year rolling beta, 7/1/1996–12/31/2015

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Source: FTSE Russell and Morningstar Direct, data as at December 31, 2015. Past performance is no guarantee of future results. Certain returns shown reflect hypothetical historical performance. Please see the final page for important legal disclosures.

Combined styles indexes performed as would be expected in various environmentsFigure 6 summarizes the calendar-year performance of the combined style indexes relative to the Russell 1000 Index from 2007 – immediately preceding the Global Financial Crisis – through the end of 2015. Figure 6 also includes the economic backdrop in these years.

In 2007, the Growth variants of the indexes, both Defensive and Dynamic, led the Russell 1000 Index’s performance measuring the U.S. large cap equity market’s performance, with the Growth-Dynamic the stronger of the two, partly due to its exposure to companies in the Energy sector. This year was characterized by moderately strong economic growth and consumer spending. Inflation and interest rates were high and unemployment was relatively low.

The 2007 leader, Growth-Dynamic, lagged in the following year, painting a very different picture in 2008. The Defensive indexes led the group, although the combined indexes logged negative returns across the board. Economic growth and consumer spending turned negative, inflation was stagnant, unemployment jumped and the U.S. Federal Reserve lowered the Fed Funds Target Rate to an unprecedented 0%–0.25%. During this weak market environment, the Defensive indexes led the Dynamic indexes, regardless of Growth or Value orientation, with the Value-Defensive slightly ahead.

In 2009, Growth and Dynamic indexes took the lead, with the Growth-Dynamic index leading the combined style indexes with a 51.17% index return for the year, which was helped by greater exposure to a rebounding Financial Services sector and strong performance of the Technology and Consumer Discretionary sectors. Economic growth and consumer spending were solidly negative, and unemployment climbed to 9.9%. The Dynamic indexes’ strength continued into 2010, when GDP and consumer spending turned positive.


The performance of the Russell 1000 Index was tepid in 2011, and while the Defensive indexes delivered the highest returns, the Dynamic indexes turned negative. Unlike in 2008, however, GDP and consumer spending were positive, with relatively high inflation. In addition, volatility for the Russell 1000 Index declined from the previous year.

The tides turned again in 2012 and 2013, as both the Growth-Dynamic and the Value-Dynamic indexes led the pack as GDP and consumer spending returned to moderately stronger levels. Inflation, unemployment and market volatility continued to stabilize and move downward. Amid exceptionally strong overall market returns in 2013, even the Growth-Defensive index outpaced the Russell 1000 Index by a small margin.

In 2014, inflation remained modest while the economy and consumer spending rose. Unemployment declined slightly in 2014 and continued to decline into 2015. In 2015, economic growth remained steady and unemployment continued to decline, while both inflation and equity market volatility picked up slightly. On December 17, 2015, the Fed raised the Fed Funds Target Rate 25 bps for the first time since 2006; and, for the first time since 1998, the performance of the Growth-Defensive index led the other combined style indexes, followed by Growth-Dynamic, Value-Defensive, and Value-Dynamic indexes.


Figure 6: Calendar-year performance with economic backdrop, 2007–2015

2007 2008 2009 2010 2011 2012 2013 2014 2015

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Economic backdrop 2007 2008 2009 2010 2011 2012 2013 2014 2015

Economic growth (Real GDP) 1.8 -0.3 -2.8 2.5 1.6 2.2 1.5 2.4 2.4

Consumer spending (PCE) 2.2 -0.3 -1.6 1.9 2.3 1.5 1.7 2.7 3.1

Inflation (CPI-U, % change from previous December) 4.1 0.1 2.7 1.5 3 1.7 1.5 0.8 0.7

Unemployment 5 7.3 9.9 9.3 8.5 7.9 6.7 5.6 5

Fed Funds Target Rate on 12/31 4.25%

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Russell 1000 Index annualized standard deviation 9.3 21 21.3 18.7 15.8 10.2 8.2 8.5 13.4

Sources: FTSE Russell, Bureau of Economic Analysis, Bureau of Labor Statistics and U.S. Federal Reserve, data as at February 26, 2016. Past performance is no guarantee of future results. Certain returns shown reflect hypothetical historical performance. Please see the final page for important legal disclosures.


Index sector composition evolved with changing market conditionsFigure 7 shows how the sector composition of each of the indexes changed over this time period.

While both Value index variants had significant exposure to Financial Services historically, as of 2008 reconstitution, exposure to this sector jumped in R1VDY, offsetting the decline in R1VDF. While R1VDY maintained a large weight to Financial Services through June 2015, R1VDF had lower exposure to Financial Services over the same period. As of 2014 reconstitution, however, Financial Services companies like Wells Fargo returned to the R1VDF with the fading impact of the Global Financial Crisis, and R1VDF’s exposure to Financial Services increased again at 2015 reconstitution.

Both Growth index variants have maintained substantial exposure to the Technology sector since 2007, although R1GDY had the largest Technology exposure going into the tech bubble and subsequent crash. Following the Global Financial Crisis, R1GDF had a greater Technology weight than R1GDY, holding larger, more mature companies such as IBM. In contrast, R1GDY held more volatile companies such as Amazon.com. In addition, in recent years, the Consumer Discretionary sector has been the largest sector weight in R1GDY.


Figure 7: Historical month-end sector weights, July 1996–June 2015

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Dynamic index variants led in bull marketsThe Dynamic index variants outperformed their Defensive counterparts, albeit with higher risk, in two recent bull markets (Figure 8). The 2002–2007 bull market was driven largely by the performance of Financial Services companies, which contributed to the outperformance of the Value-Dynamic index. The Growth-Defensive index lagged the other indexes during this period.

In the second bull market period examined, that of 2009–2011, a similar pattern is observed, though with higher standard deviation for the Value-Dynamic index, which held volatile companies such as recovering banks. In this period, the Value-Defensive index lagged the other combined style indexes.


Figure 8: Risk/reward in two recent bull markets

10/1/2002–10/31/2007: Financial stocks drove outperformance of Value compared with Growth indexes

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Defensive index variants led in bear markets In contrast, the Defensive index variants fared better in two recent bear markets. In the 2007–2009 bear market, the Financial Services sector contributed to the underperformance of the Value-Dynamic index. The Growth-Defensive index outperformed the other combined style indexes.

In the shorter, five-month bear market in mid-2011, the Value-Dynamic index again underperformed the other combined style indexes. The Value-Defensive and Growth-Defensive indexes again held up better than their Dynamic counterparts or the Russell 1000.


Figure 9: Risk/reward in two recent bear markets

11/1/2007–2/28/2009: Value underperformed Growth due to Financial Services sector crash

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Performance was mixed in periods of rising rates, when the 10-year U.S. Treasury yield increasedIn this section, we examine how the combined style indexes performed when the 10-year U.S. Treasury rate rose. Since July 1996, yields on the 10-year U.S. Treasury note have increased more than 1% in four periods spanning a minimum of 12 months (Figure 10).

Figure 10: Historical 10-year U.S. Treasury rates

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3

4

5

6

7

8

Jun-

96

Jun-

97D

ec-9

6

Dec

-97

Jun-

98D

ec-9

8Ju

n-99

Dec

-99

Jun-

00D

ec-0

0Ju

n-01

Dec

-01

Jun-

02D

ec-0

2Ju

n-03

Dec

-03

Jun-

04D

ec-0

4Ju

n-05

Dec

-05

Jun-

06D

ec-0

6Ju

n-07

Dec

-07

Jun-

08D

ec-0

8Ju

n-09

Dec

-09

Jun-

10D

ec-1

0Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

2.2% increaseover 16 months

1.4% increase over 16 months


1/31/2000, 6.7%

9/30/1998, 4.4%

5/30/2003, 3.4%

6/30/2006, 5.2%

12/31/2008, 2.3%

3/31/2010, 3.8%

7/31/2012, 1.5%

12/31/2013, 3.0%


Source: U.S. Department of the Treasury, data as at December 31, 2015.

Figure 11 shows that performance of the combined style indexes was mixed in each of the four periods. However, in two of those periods, R1GDY led; R1VDY led in the other two. In three of the four periods (except 2003–2006), the Value-Defensive index lagged the other combined style indexes. In all four periods examined, the four combined style indexes outperformed the Barclays U.S. Aggregate Bond Index (measuring the U.S. bond market).

In the first period examined, from 9/30/1998–1/31/2000, the 10-year U.S. Treasury rate increased 2.2% over 16 months; this period overlaps with the tech bubble. In addition, from June 1999 through May 2000, the U.S. Federal Reserve raised the short-term Federal Funds Target Rate six times, for a total increase of 175 bps, from 4.75% to 6.5%. With a cumulative return of 84.8%, R1GDY outperformed the other combined style indexes as the performance of Technology stocks led the market; R1VDF lagged with a return of 6.9%. The performance of the Barclays U.S. Aggregate Bond Index was slightly negative, while all four combined style indexes delivered a positive cumulative return.

In the 5/30/2003–6/30/2006 period, the 10-year U.S. Treasury rate increased 1.8% over 37 months. In addition, from June 2004 through June 2006, the U.S. Fed raised the Fed Funds Target Rate 17 times, for a total increase of 425 bps, from 1% to 5.25%. This period coincides with the housing bubble, and the performance of the Value index variants, with their heavier Financial Services exposure, benefited. With a cumulative return of 61.5%, R1VDY was the performance leader during this period, followed by R1VDF with a cumulative return of 51.6%; the two Growth index variants lagged the two Value index variants, though they still outperformed U.S. bonds. During this period, the Barclays U.S. Aggregate Bond Index returned 6.1%, compared to the lowest combined style index return of 20.6% for R1GDF.


In the 12/31/2008–3/31/2010 period transitioning out of the Global Financial Crisis, the 10-year U.S. Treasury rate increased 1.4% over 16 months. In this recovery phase, both Dynamic index variants outperformed the Defensive index variants. With a 61.3% cumulative return, R1GDY led the market, followed by R1VDY, Russell 1000, R1GDF and R1VDF. The R1VDF delivered the lowest return (9.5%) among the combined style indexes, outperforming U.S. bonds, which returned 7.8%

In the most recent period, 7/31/2012–12/31/2013, the 10-year U.S. Treasury rate increased 1.5% over 17 months. R1VDY led the performance of the combined style indexes, followed by R1GDY, Russell 1000 Index, R1GDF and R1VDF. Each of the combined style indexes returned 30% or more on a cumulative return basis, while the performance of U.S. bonds turned negative, returning -1.6%.

Figure 11: Performance of combined style indexes in rising 10-year U.S. Treasury rate environments

Russell 1000 Growth-Defensive IndexRussell 1000 Value-Defensive IndexBarclays U.S. Aggregate Bond IndexRussell 1000 Index

Russell 1000 Growth-Dynamic IndexRussell 1000 Value-Dynamic Index

9/30/1998 –1/31/2000

5/30/2003 – 6/30/2006

12/31/2008 – 3/31/2010

7/31/2012 – 12/31/2013

-100

102030405060708090

Cum

ulat

ive

Tota

l Ret

urn

(%)

Sources: FTSE Russell and Morningstar Direct, data as at December 31, 2015. Past performance is no guarantee of future results. Certain returns shown reflect hypothetical historical performance. Please see the final page for important legal disclosures.


Conclusion: The Defensive/Dynamic style dimension and the Growth/Value dimension in combination offer more insight into different market segments The Defensive and Dynamic indexes become even more distinct and offer more granularity when combined with the Growth and Value style indexes. In two recent bull markets, Dynamic indexes, both Growth and Value, outperformed Defensive indexes; in two recent bear markets, both Growth-Defensive and Value-Defensive indexes outperformed the Dynamic indexes. In either bull or bear markets, Defensive indexes exhibited lower volatility than their Dynamic counterparts. In rising rate environments, while performance of the combined style indexes was mixed in different periods, the performance leader was either Growth-Dynamic or Value-Dynamic in the four periods examined. In addition, the four combined style indexes outperformed the U.S. bond market in each of the recent rising rate periods examined.

The benefit of having a comprehensive, modular suite of style indexes is in the investor’s ability to use each to benchmark manager performance in accordance with the investor’s beliefs, or as a tool when seeking desired investment outcomes. As awareness of the Russell-denoted “third dimension of style” – the risk dimension – grows, use of the Defensive and Dynamic indexes for research and passive or active investing has grown; with the combined style indexes, investors can further segment the investment opportunity set.

FTSE Russell 20

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Documents

Russell Stability Indexes - FTSE · Russell Stability Indexes Performance of Russell 1000 ® combined style indexes in various market conditions. Insights. FTSE Russell. March 2016