U.S. Small Cap Valuations Have Decreased in 2014; Russell 2000® Index Turns Positive for the Year
SEATTLE, WA–(Marketwired – Septemer 2, 2014) – U.S. equity markets had a notable shift in performance during the month of August as of August 26th, with small-cap, growth-oriented stocks outperforming their large cap, value-oriented counterparts. In addition, current U.S. small cap equity market valuations as defined by one year ahead forecast price-earnings ratio have decreased more than 10% in 2014.
The U.S. small cap Russell 2000® Index returned 5% in August-to-date, with growth-oriented stocks (5.6%) outperforming value-oriented stocks within the Index. The U.S. large cap Russell 1000® Index returned 3.9% in August-to-date, with growth-oriented stocks (4.5%) outperforming value-oriented stocks (3.3%) within the Index. Notably, while still significantly underperforming the Russell 1000 Index (9.6%), the Russell 2000® Index (1.8%) has turned positive year-to-date as of August 26.
Valuations for U.S. small cap stocks have also shifted recently. The 1 year forecast price-earnings ratio for the Russell 2000® Index stood at 17.7 as of August 26, compared to 19.7 at June 30 and 19.6 at December 31, 2013. The 10-year average 1 year P/E for the Index as of June 30 is 16.3.
“We have seen some stabilization in smaller cap, higher growth stocks in August,” said Jon Eggins, senior portfolio manager with Russell Investments. “Going into 2014, small cap stocks, particularly on the higher growth end of the spectrum, were looking relatively expensive. The significant underperformance of this group in 2014 has tempered this valuation gap. However, within small cap we continue to favor the higher quality, value-oriented market segments.”
“The recent shift toward small-cap, growth-oriented stocks by investors coupled with lower valuations for this market segment may reflect solid earnings for small-cap stocks and investor expectations for stronger economic growth in the second half of 2014,” said David Koenig, CFA, FRM, index investment strategist with Russell Investments. “In a year of more pronounced market ups and downs such as 2014, it is important for investors to have access to high quality index tools to help measure and track the continuing evolution of the markets.”
Small-Cap Growth Led Large Cap Value in August-to-Date: Russell Indexes
MTD as of Aug 26 QTD as of Aug 26 YTD as of Aug 26
- Russell 2000® Index 5.0% -1.4% 1.8%
- Russell 2000® Growth Index 5.6% -0.8% 1.4%
- Russell 2000® Value Index 4.4% -1.9% 2.2%
- Russell 1000® Index 3.9% 2.2% 9.6%
- Russell 1000® Growth Index 4.5% 2.9% 9.4%
- Russell 1000® Value Index 3.3% 1.6% 10.0%
Source: Russell Investments. Returns are total returns (reflect reinvestment of dividends and distributions) and are denominated in U.S. dollars.
For more information on the Russell 2000® Index and the entire Russell Indexes family, go to the Russell Indexes website.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
Russell’s publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index.
Opinions expressed by Mr. Eggins and Mr. Koenig reflect market performance as of August 26, 2014 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.
Forecasting is inherently uncertain and may be incorrect. It is not representative of a projection of the stock market, or of any specific investment.
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