Russell Investment Group, a subsidiary of Tacoma, Wash.-based Northwestern Mutual, will add a new microcap index to its family of U.S. equity benchmarks after an annual reconstitution of indexes scheduled for June 24.
The Russell Microcap Index will consist of the smallest 1,000 securities in the small-cap Russell 2000 plus the next 1,000 companies below the index. The new index of the smallest publicly traded companies will represent approximately 3% of U.S. equity market capitalization, officials said. Stocks traded on OTC Bulletin Board or penny-stocks of "pink sheets" will not be included.
"Microcaps have outperformed small caps in the three of the past four years and the cumulative four-year gap is impressive," said Steve Swartley, senior manager research analyst at Russell. "This performance gap shows the importance of using a distinct benchmark that accurately captures this dynamic segment of the market."
As for the companies listed, in addition to the benefits of being included in the newly created marketplace, the index will allow for performance comparisons against a pool of peers.
The Russell Microcap's available performance history reflects an annualized return of 9.03%, from June 30, 2000, through the end of the first quarter in 2005, versus 5.08% for the Russell 2000. The Russell Microcap had an average weighted market capitalization of $290 million last June, compared to $900 million for the Russell 2000. Similarly, the P/E ratio of the Russell Microcap was 42.8 last June, versus 30.5 for the Russell 2000.
Companies slated for the Russell Microcap will be ranked as of May 31 by total market capitalization and will be weighed base on a "free-float" adjustment, Russell officials said.