1. No category

SMALL CAP
PERSPECTIVES
RUSSELL 2000® INDEX QUARTERLY ANALYSIS
RUSSELL
INDEXES
DECEMBER 2014
Russell Indexes
by Russell Investments
Market recap commentary – Q4 2014
After trailing large caps for much of 2014, small cap stocks sprinted ahead
during the fourth quarter. The Russell 2000® Index posted its strongest quarter
since the third quarter of 2013, recovering from negative territory and making
all of its gains for the year and more during the period. Investors overcame
geopolitical concerns and questions about the strength of global growth
to focus on continued solid earnings growth, signs of a strengthening U.S.
economy and the potential economic benefits of a sharp decline in oil prices.
The smallest stocks led in the quarter
In a reversal from the first three quarters of 2014, the smallest stocks
reassumed leadership during the fourth quarter. The Russell Microcap®
Index surged 11.2% during the period, followed by the Russell 2000 at 9.7%.
The largest stocks were the weakest performers, though they still posted
solid returns for the period. The Russell Top 200® Index of mega cap stocks
returned 4.4%, followed by the Russell 1000 at 4.9%.
In that environment, the Russell 2000 rose 9.7% during the fourth quarter,
after a pullback of more than 11% during September and early October. The
index saw positive returns during every month of the quarter for the first time
since the fourth quarter of 2013. Large cap stocks also saw solid gains during
the quarter, with a total return of 4.9% for the Russell 1000® Index. For the full
year, large caps led with a total return of 13.2% vs. 4.9% for small caps.
In terms of style, growth continued to lead value in small cap during the fourth
quarter after having reassumed leadership during the third quarter. The Russell
2000® Growth Index gained 10.1% compared with 9.4% for the Russell
2000® Value Index. In large cap, growth and value showed little differentiation
during the period, with both the Russell 1000® Growth and Value Indexes
gaining approximately 5%. For the full year, growth led value in small cap and
performed essentially in line with value in large cap.
The strong gains during the fourth quarter boosted the valuation of the Russell
2000 back above its longer-term average, after having fallen back significantly
during the third quarter. At the end of 2014, the price-to-earnings ratio —
based on 1-year forecasted analyst estimates — stood at 18.8 vs. 16.9 at the
end of the third quarter, well above the 10-year average of approximately 16.3,
but below 19.6 at the end of 2013.
The Russell 2000® Index has much greater exposure to companies
deriving their revenue from the U.S. than large-cap indexes like the
Russell 1000® Index, which contain more multinational companies. For
this reason, the Index can be a strong indicator for the relative health of
the U.S. economy,” said David Koenig, CFA, FRM, Index Investment
Strategist with Russell Investments. “And with accelerating U.S.
economic growth, solid corporate earnings and valuations that had
dropped nearer to historical averages, it is not surprising that investors
appeared to be coming back to this asset class.”
Among the Russell Stability Indexes™, defensive-oriented stocks continued
to outpace dynamic-oriented stocks during the quarter in both small cap and
large cap. With growth and defensive leading their style counterparts during
the quarter, this highlights how Stability captures a different dimension of style
from traditional growth and value, providing an additional lens for investors to
help understand constantly shifting market trends. For all of 2014, defensiveoriented stocks outperformed dynamic-oriented stocks in both small cap and
large cap.
Volatility continued to move higher
Volatility was consistently higher during the fourth quarter than during the
third quarter. The Russell 2000 saw 28 moves of at least 1% during the fourth
quarter, with 4 moves of at least 2% and one gain of more than 3%. That
compares with 16 moves of at least 1% during the third quarter, with 1 of
those a decline of greater than 2%. Volatility rose toward longer-term averages
over the course of 2014 compared with the exceptionally low volatility of 2013.
However, volatility remained well below its longer-term averages, as measured
(continued)
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
01
Russell Indexes
by Russell Investments
Market recap commentary
(continued)
by trailing 1-year standard deviation.
U.S. economy continued to strengthen; oil prices saw dramatic decline
The fourth quarter brought additional signs of a strengthening U.S. economy.
Gross domestic product (GDP) increased at an annual rate of 5.0% in the third
quarter, following 4.6% in the second quarter, according to the Bureau of
Economic Analysis. That was the strongest two consecutive quarters of growth
since the second half of 2003.
Unemployment continued its steady decline, falling to 5.6% in December,
down from a high of 10.0% reached in October 2009. Job growth in 2014 was
the strongest in 15 years, with 2.95 million jobs added. However, the labor
participation rate declined further, underemployment is still elevated and wage
growth remained stagnant. As a result, inflation has remained tame throughout
the gradual economic recovery. The core personal consumption expenditures
index, the Fed’s preferred inflation measure, stood at an annual rate of 1.4%
as of November, below the Fed’s 2.0% target. Contrary to expectations, bond
yields moved lower in 2014, with the 10-year note yield at approximately 2.2%
at year-end compared with 3.0% at the end of 2013.
the Federal Open Market Committee (FOMC) noted the expanding economic
activity, improving labor market, solid household spending and advancing
business investment. The committee revised its language about holding shortterm interest rates near zero for a “considerable time,” stating instead that it
could be “patient” in beginning to normalize interest rates but that the timing
of any changes in monetary policy would be highly data dependent.
Bottom line
After exceptionally strong performance in 2013, the Russell 2000 posted
moderate gains for 2014 despite trading in negative territory for much of the
year. As 2015 began, small cap stocks were supported by strengthening U.S.
economic growth, falling unemployment and continued low inflation. However,
with valuations for the Russell 2000 still above longer-term averages and
prospects for the Fed to begin raising interest rates in 2015, investors could
face another year of modest returns punctuated by periods of heightened
volatility.
“We believe the U.S. will continue to set the tone for global equities as
we enter 2015. And, while U.S. large cap stocks likely may continue to
modestly outperform U.S. small cap stocks next year, we expect the
Russell 1000® Index to grow in the mid single digits,” said Doug Gordon,
Senior Portfolio Manager for Tactical Asset Allocation Strategies,
Russell Investments.1 “Our expectation is that the U.S. Fed will likely
start to tighten interest rates near the end of the second quarter, while
central banks outside the U.S. such as the European Central Bank and
Bank of Japan may continue to move in the opposite direction. As the year
progresses, we’ll keep a close eye on economic data such as employment,
wage inflation and fourth quarter earnings for clues on U.S. monetary
policy direction as we expect a data driven Fed will be tracking those
numbers closely.”
Crude oil prices continued to decline sharply and the U.S. dollar strengthened
further during the fourth quarter. By year-end, oil prices had fallen more
than 50% from above $100 in July 2014, reaching levels last seen during the
2008–2009 financial crisis. The rapid decline in oil prices led to a meaningful
drop in gasoline prices, providing a potential boost to consumer spending. The
oil price decline was attributed largely to a supply glut as a result of the shale
oil boom, further fueled by the strengthening dollar. However, the rapid decline
also raised concerns about the strength of global growth amid continued
economic weakness in Europe and slower growth in China.
With U.S. economic growth strengthening, the Federal Reserve ended its
quantitative easing program during the fourth quarter and appeared to remain
on track to begin raising interest rates in mid-2015. At its December meeting,
Russell Investments, “2015 Annual Global Outlook,” December 2014.
1
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
02
Russell Indexes
by Russell Investments
Market performance
Size
›› Equity market returns were strong across capitalization tiers during the
fourth quarter, with the smallest stocks the strongest performers (See Exhibit
1).
›› Microcap stocks were the leaders (+11.2%) during the fourth quarter,
followed by small caps (+9.7%). The weakest, though still strong, performers
were mega cap stocks (+4.4%) and large cap stocks (+4.9%).
›› For the trailing 12-month period, the largest stocks remained the leaders,
with performance ranked according to size. Mega cap stocks led (+13.3%)
for the period, with small caps (+4.9%) and micro caps (+3.7%) the weakest
performers for the period
Exhibit 1 / Market Cap Performance
Total Return (%) (as of 12/31/2014)
2014
4th qtr
›› Defensive-oriented companies continued to lead dynamic-oriented
companies in both small cap and large cap during the quarter, as investors
appeared to focus on higher-quality companies that continued to show stable
growth prospects and lower stock-price volatility.
›› For the 12-month period, growth led in small cap but showed little
differentiation with value in large cap. Defensive-oriented companies led
dynamic-oriented companies in both capitalization tiers.
2nd qtr
1st qtr
12 Mos
5.2
0.0
4.9
2.0
12.6
Russell Top 200© Index
4.4
1.7
5.2
1.4
13.3
Russell 1000 Index
4.9
0.7
5.1
2.0
13.2
Russell Midcap© Index
5.9
-1.7
5.0
3.5
13.2
Russell 2000© Index
9.7
-7.4
2.0
1.1
4.9
Russell Microcap Index
11.2
-8.2
-1.4
3.0
3.7
2014
4th qtr
3rd qtr
©
©
Exhibit 2 / Style Performance
Total Return (%) (as of 12/31/2014)
Style
›› In terms of style, growth continued to lead in small cap during the fourth
quarter, while growth and value posted relatively comparable returns in large
cap (See Exhibit 2).
3rd qtr
Russell 3000© Index
2nd qtr
1st qtr
12 Mos
Russell 1000 Growth Index
4.8
1.5
5.1
1.1
13.1
Russell 2000® Growth Index
10.1
-6.1
1.7
0.5
5.6
Russell 1000® Value Index
5.0
-0.2
5.1
3.0
13.5
Russell 2000 Value Index
9.4
-8.6
2.4
1.8
4.2
Russell 1000® Defensive Index
5.4
1.1
4.7
2.0
13.8
Russell 2000® Defensive Index
11.5
-5.8
1.3
0.0
6.4
Russell 1000® Dynamic Index
4.4
0.2
5.5
2.1
12.6
Russell 2000 Dynamic Index
7.9
-8.9
2.7
2.2
3.3
®
®
®
Russell Investments 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 U.S. Indexes available at Russell.com/Indexes.
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
03
Russell Indexes
by Russell Investments
Small Cap performance analysis
Exhibit 3 / Russell 2000 Index Price Performance
›› The Russell 2000 returned to positive gains during the fourth quarter. That
followed a decline during the third-quarter, which was its first negative quarter
following a streak of eight consecutive quarters of positive total returns.
›› For the year, the Russell 2000 gained 4.9%, compared with its exceptionally
strong return of 38.8% in 2013 (See Exhibit 3).
›› On a rolling 12-month basis, the strong performance of small cap stocks during
the quarter narrowed the performance gap with large cap stocks, which had
reached more than 15 percentage points earlier in the year. By the end of 2014,
that gap had narrowed to approximately 8 percentage points (See Exhibit 4).
›› Since the market trough on March 9, 2009, the Russell 2000 has advanced about
two and a half times, with a cumulative total return of approximately 251% (See
Exhibit 5). As of the end of the year, the Russell 2000 had risen approximately
41% since its previous peak on July 13, 2007.
Exhibit 4 / 12-Month Rolling Returns
(January 2013 – December 2014)
2014
Total Return
+4.9%
2013
Total Return
+38.8%
3000
2800
2600
2400
2200
2000
1800
03/28/2013 06/28/2013 09/30/2013 12/31/2013 03/31/2014
06/30/2014 09/30/2014 12/31/2014
Exhibit 5 / Russell 2000 Index Price Performance
Total Return (%) — 10 Years (as of 12/31/2014)
(January 2007 – December 2014)
%
80
3500
60
3000
40
2500
20
2000
0
1500
-20
Total Return
Since 03/09/2009
Low +251.0%
1000
-40
-60
Dec-04
Total Return
Since 07/13/2007
Peak +40.8%
500
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
RUSSELL 2000 INDEX
Dec-13
Dec-14
12/29/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/30/2011 12/31/2012 12/31/2013 12/31/2014
RUSSELL 1000 INDEX
Exhibit 6 / Performance
Total Return (%) (as of 12/31/2014)
Annualized returns (%)
Calendar year return (%)
4th Qtr
1 yr
3 yr
5 yr
10 yr
2010
2011
2012
2013
2014
Russell 2000 Index
9.73
4.89
19.21
15.55
7.77
26.85
-4.18
16.35
38.82
4.89
Russell 1000 Index
4.88
13.24
20.62
15.64
7.96
16.10
1.50
16.42
33.11
13.24
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
04
Russell Indexes
by Russell Investments
Relative returns analysis
Exhibit 7 / Performance — Growth of $1,000
›› Over the past decade, both small cap and large cap stocks have posted strong
cumulative total returns. From December 2004–December 2014, both the
Russell 2000 and the Russell 1000 have more than doubled in value (See
Exhibit 7).
›› Among the traditional nine style boxes, the Russell 2000 Growth Index was the
top performer for the fourth quarter, while the Russell 1000 Growth Index was
the bottom performer. For 2014, the Russell Midcap Value Index was the top
performer (See Exhibit 8).
›› For all of 2014, active small cap managers underperformed the Russell 2000,
on average, delivering an average total return of 4.1% vs. 4.9% for the index.
However, the median manager return of 5.2% was slightly ahead of the index
(See Exhibit 9).
Exhibit 8 / Russell Index Style Performance
3Q 2014
Growth
Large
(1000)
5.0
4.9
4.8
Mid
6.1
5.9
5.8
2000
1500
1000
500
0
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
RUSSELL 2000 INDEX
Dec-12
Dec-13
Dec-14
RUSSELL 1000 INDEX
Total Return (%) (as of 12/31/2014)
4Q 2014
Core
$
2500
Exhibit 9 / Small Cap Manager Universe Returns
Total Return (%) (as of 12/31/2014)
Value
Total Return (%) — 10 Years (as of 12/31/2014)
Russell 2000 Index
120
Value
Core
Growth
Large
(1000)
-0.2
0.7
1.5
Mid
-2.7
-1.7
-0.7
Manager average
100
80
60
40
20
0
Small
(2000)
9.4
9.7
10.1
Small
(2000)
-8.6
-7.3
-6.1
-20
-40
-60
2014
-80
2013
Value
Core
Growth
Large
(1000)
32.5
33.1
33.5
11.9
Mid
33.5
34.8
35.7
5.6
Small
(2000)
34.5
38.8
43.3
Value
Core
Growth
Large
(1000)
13.5
13.2
13.1
Mid
14.8
13.2
Small
(2000)
4.2
4.9
Russell 2000 Index
Manager average
High
25th percentile
Median
75th percentile
Low
# of Observations
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
2009
27.2
33.9
100.2
43.5
34.1
26.5
0.8
2010
26.9
27.2
109.1
31.2
27.7
24.1
3.4
2011
-4.2
-1.8
19.0
1.6
-1.9
-5.4
-24.5
2012
16.3
16.4
41.0
19.6
16.4
13.3
-4.8
2013
38.8
41.2
66.3
45.5
41.1
36.4
8.6
2014
4.9
4.1
19.0
7.8
5.2
1.7
-20.2
730
703
675
637
614
556
Source: eVestment. Small Cap Manager universe data obtained on 01/15/2015.
The eVestment Small Cap manager universe includes data from between 556 and 730 managers.
05
Russell Indexes
by Russell Investments
Risk analysis
Exhibit 10 / Implied Volatility
›› While realized volatility, as measured by the daily returns of the Russell 2000,
has moved a bit higher in 2014, it remains moderate relative to levels reached
in 2011 and during the financial crisis in 2008–2009 (See Exhibit 11).
›› As illustrated by rolling one-year standard deviation, volatility continued to
move moderately higher during the fourth quarter after reaching exceptionally
low levels in 2013. At about 15.0%, however, as of the end of the quarter, it
remained below its 10-year average of approximately 17.5% (See Exhibit 12).
Exhibit 11 / Russell 2000 Index Daily Returns
RVX Index Value
CBOE Russell 2000 Volatility Index (RVX) (December 2004 – December 2014)
›› Expected volatility among small cap stocks moved meaningfully higher over
the course of 2014, rising to about 22.7 at year-end vs. 17.5 at the end of 2013,
as measured by the CBOE Russell 2000 Volatility Index (RVX). Volatility has
moved back near longer-term averages after falling to exceptionally low levels
in 2013 (See Exhibit 10).
100
90
80
70
60
50
40
30
20
10
0
Dec-04
Dec-05
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
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.
Exhibit 12 / 12-Month Rolling Standard Deviation (%)
Total Return (%) — 20 Years (as of 12/31/2014)
10 Years (as of 12/31/2014)
%
%
15
40
10
Russell 2000
Index
10 Yr Avg
17.5%
30
5
0
20
-5
10
-10
-15
Dec-94
Dec-06
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
Dec-10
Dec-12
Dec-14
0
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
RUSSELL 2000 INDEX
Dec-12
Dec-13
Dec-14
RUSSELL 1000 INDEX
Exhibit 13 / Risk Characteristics
Annualized (as of 12/31/2014)
Standard Deviation (%)
Sharpe Ratio
1 yr
3 yr
5 yr
10 yr
1 yr
3 yr
5 yr
10 yr
Russell 2000 Index
14.86
13.12
17.83
19.67
0.39
1.41
0.9
0.41
Russell 1000 Index
8.11
9.12
13.15
14.91
1.58
2.11
1.17
0.49
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
06
Russell Indexes
by Russell Investments
Small cap asset flows
Exhibit 14 / Quarterly Small Cap Total Assets ($ billions)
10 Years (As of 12/31/2014)
›› A return to positive flows and strong performance for small cap U.S. equities
during the fourth quarter pushed total assets in small cap mutual funds and
ETFs to a record high at year-end. Total assets reached $580.4 billion at the end
of 2014, edging above the previous record of $579.2 billion at the end of the
second quarter 2014 (See Exhibit 14).
›› Small cap flows were positive in two of three months during the quarter, with
strong flows in November and December offsetting the negative flows that
occurred in October amid significant market volatility (See Exhibit 15).
$
600
500
400
›› Measured on a quarterly basis, small cap mutual funds and ETFs saw moderate
but positive flows of approximately $1 billion during the quarter. That followed
two consecutive quarters of outflows that totaled more than $16 billion (See
Exhibit 16).
›› Net flows specifically into U.S. small cap ETFs were positive during each month
of the quarter, with total net inflows of more than $4 billion for all of 2014,
according to Blackrock’s Dec. 31 ETF Landscape.
Exhibit 15 / Monthly Small Cap Asset Flows ($ billions)
300
200
100
0
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-12
Dec-13
Dec-14
Exhibit 16 / Quarterly Small Cap Asset Flows ($ billions)
Estimated Net Flows (January 2013 – December 2014)
Estimated Net Flows — 10 Years (As of 12/31/2014)
8000
$
6000
15
4000
10
2000
0
5
-2000
0
-4000
Dec-14
Oct-14
Nov-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Feb-14
Mar-14
Jan-14
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
Apr-13
May-13
-10
Mar-13
-8000
Jan-13
-5
Feb-13
-6000
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.
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
-15
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
07
Russell Indexes
by Russell Investments
Russell 2000 Index sector weights
›› The largest year-over-year change in the sector composition of the Russell
2000 occurred in the Energy sector. A decline of approximately 50% in the
price of crude oil during the second half of 2014 caused the weighting of
the Energy sector to decline more than 2.1 percentage points from year-end
2013 (See Exhibit 17).
›› Other meaningful year-over-year changes included increases of
approximately 1.5 percentage points in the weightings of the Financial
Services and Health Care sectors.
›› The Financial Services sector remained the largest sector in the Russell 2000,
making up more than 25% of the index as of the end of 2014 (See Exhibit
18). Approximately a third of that weighting was in Real Estate Investment
Trusts (REITs), providing a significant source of index yield.
›› The Technology sector remained the second largest sector, with a weighting
of 14.9% as of the end of 2014, followed closely by the Health Care sector at
14.8% and Consumer Discretionary at 14.4%.
›› Consumer Staples — a sector dominated by large multi-nationals —
remained the smallest sector within small cap at less than 3%, a decline of
nearly half a percentage point compared with a year ago.
Exhibit 17 / Historical Sector Weightings (%)
10 Years (as of 12/31/2014)
%
Financial
Services
100
90
Technology
80
Health Care
70
Consumer
Discretionary
Producer
Durables
Materials &
Processing
60
50
40
30
Utilities
20
Energy
10
Consumer
Staples
0
Dec-04
Dec-05 Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Exhibit 18 / Current Sector Weightings (%)
(as of 12/31/2014)
Energy Consumer Staples
Utilities 3.2% 3.0%
Financial Services
4.6%
25.4%
Materials &
Processing
6.5%
Producer
Durables
13.4%
Technology
14.9%
Consumer
Discretionary
14.4%
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
Health Care
14.8%
08
Russell Indexes
by Russell Investments
Russell 2000 Index sector attribution analysis
Exhibit 19 / Sector Contribution to Return (%)
›› The Russell 2000’s strong advance during the fourth quarter was broad-based, with
eight of nine economic sectors contributing to returns. The only detractor was the
Energy sector, which was pushed down by the sharp decline in the price of oil (See
Exhibit 19).
Fourth Quarter 2014 (as of 12/31/2014)
%
›› The biotechnology industry was the strongest contributor to returns during the fourth
quarter, adding nearly a percentage point to performance. That was followed by banks
and computer services software. Overall, 117 out of 146 industries were positive
contributors (See Exhibit 20).
3.0
2.5
2.0
1.5
1.0
0.5
0.0
›› As during the third quarter, the biggest detractors were again oil industry companies
as the price of crude oil dropped more than 50% from July through year-end to below
$50 a barrel (See Exhibit 21).
-0.5
-1.0
-1.5
-2.0
Financial Technology
Services
›› The Financial Services sector was the strongest contributor to returns during the
quarter due its strong advance and large weighting within the index. The Health Care
sector had a stronger return but because of its smaller weighting it was a moderately
smaller contributor to returns (See Exhibit 22).
Health
Consumer Producer Materials Utilities
Care Discretionary Durables & Processing
Energy
Consumer
Staples
Exhibit 21 / Bottom Industry Contributors (%)
Exhibit 20 / Top Industry Contributors (%)
Fourth Quarter 2014
Fourth Quarter 2014
%
%
0.0
1.0
-0.2
0.8
-0.4
0.6
-0.6
0.4
-0.8
0.2
-1.0
0.0
Biotechnology
Banks:
Diversified
Computer
Services
Software &
Systems
Medical &
Dental
Instruments
& Supplies
Semiconductors
& Components
-1.2
Oil: Crude
Producers
Oil Well
Equipment
& Services
Energy
Equipment
Metals &
Minerals:
Diversified
Alternative
Energy
Exhibit 22 / Sector Review
Fourth Quarter 2014 (as of 12/31/2014)
Financial
Services
Technology
Health Care
Consumer
Discretionary
Russell 2000 Index Weight (%)
25.4
14.9
14.8
14.4
Total Return (%)
11.17
12.45
17.43
Contribution to Return (%)
2.89
1.74
2.41
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
Producer
Durables
Materials &
Processing
Utilities
Energy
Consumer
Staples
13.4
6.5
4.5
3.2
3.0
14.17
8.96
6.27
15.20
-34.75
14.09
1.96
1.22
0.42
0.68
-1.99
0.39
09
Russell Indexes
by Russell Investments
Russell 2000 Index fundamental characteristics
Exhibit 23 / Price-to-earnings Ratio (P/E)
I/B/E/S 1-year forecasted — 10 Years (as of 12/31/2014)
›› Following a significant decline in valuation levels during the third quarter,
valuations moved higher again for the Russell 2000 during the fourth quarter.
The index’s price-to-earnings ratio based on 1-year forecasted earnings per
share was approximately 18.8 at year-end, down from 19.6 at the end of 2013.
Solid earnings growth has supported valuations above its 10-year average of
about 16.3 (See Exhibit 23).
30
25
10 Yr Avg
16.3
20
15
›› Profitability, as measured by return on assets (ROA), continued to move upward
during the fourth quarter, rising above its 10-year average of about 6.1% from
5.1% at the end of 2013 (See Exhibit 24).
10
›› Forecasted earnings growth edged slightly downward to about 13.5%
compared with 13.7% at the end of the third quarter. That compares with
13.3% at the end of 2013 and a longer-term average of about 13.8% (See
Exhibit 25
5
0
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Exhibit 25 / Earnings growth
Exhibit 24 / Return on Assets (ROA)
I/B/E/S 5-year forecasted EPS — 10 Years (as of 12/31/2014)
Trailing 5 Years (%) — 10 Years (as of 12/31/2014)
%
10
20
10 Yr Avg
6.1
8
15
6
10
4
5
2
0
Dec-04
10 Yr Avg
13.8
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
0
Dec-04
Dec-14
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Exhibit 26 / Fundamental Characteristics
Market Snapshot (as of 12/31/2014)
Valuation
Growth
Quality
P/E - I/B/E/S 1 Yr
Forecasted
Price/Book
Price/Cash Flow
Sales Per Share
Growth – 5 Yr
Long Term Forecasted
Growth – I/B/E/S Median
EPS Variability – 5 Yr
ROA
5 Yr Avg
Debt/Equity
Dividend Yield
Russell 2000 Index
18.81
2.31
18
6.16
13.47
51.36
6.18
0.91
1.29
Russell 1000 Index
17.16
2.78
12.86
8.82
11.27
28.18
11.9
1.23
1.9
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
10
Russell Indexes
by Russell Investments
Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange
Group.
Russell Investments is the owner of the trademarks, service marks and copyrights related to its respective indexes.
Indexes are unmanaged and cannot be invested in directly. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any
specific investment.
The inception date of the Russell 2000 Index and the Russell 3000 Index is January 31, 1984.
Unless otherwise noted, the source for the data in this report is Russell Investments.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Copyright © Russell Investments 2015. All rights reserved. First used January 2014. Revised January 2015. CORP-10169-12-2017
SMALL CAP PERSPECTIVES RUSSELL 2000® INDEX QUARTERLY ANALYSIS
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Russell Indexes
by Russell Investments
About Russell Indexes
The Russell Indexes measure the performance of the global equity
market based on all investable equity securities. The Indexes cover
98% of the investable global market. All securities in the Russell
Indexes are classified according to size, region, country, and sector;
as a result the index can be segmented into thousands of distinct
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comprehensive and unbiased barometer for the globe and are
completely reconstituted annually to accurately reflect the changes
in the market over time.