Portfolio Design: A Modern Approach to Asset Allocation

RELATIVE PERFORMANCE OF SMALL-CAP GROWTH AND VALUE STOCKS

The Russell 2000 small-cap index is divided into growth and value indexes using the same methodology as with the Russell 1000 index. That is, every June, the Russell 2000 index is divided between growth and value stocks. The two indexes for growth and value are designed to have the same total capitalization. Table 4.7 shows the industry breakdowns following the latest reconstitution in June 2009. The relative importance of different industries is similar to that found in the large-cap indexes. The health care, technology, and consumer discretionary industries are the largest in the Russell 2000 growth index, while financial services dominate the Russell 2000 value index (with more than 33 percent of the total weight). Energy plays a much smaller role in the Russell 2000 value index than in the corresponding large-cap index.

TABLE 4.7 Industry Composition of Russell 2000

Source: July 2009 capitalization from ishares.com.

TABLE 4.8 Returns for Russell Growth and Value Indexes, 1979–2009

Data Source: Russell®.

Table 4.8 summarizes the long-run performance of growth and value stocks over the 31 years since the Russell series began. To provide a more complete analysis of small-cap performance, the statistics for large-cap growth ...