Small caps. Big opportunities.
April 1, 2017
The U.S. small-cap market tends to be less efficient than other equities — which in turn can give active managers numerous opportunities to capitalize on. The small-cap universe, as represented by the Russell 2000® Index in the chart below, is shown to be less concentrated at the top compared with other types of equities, and has a substantially larger number of stocks available to trade within the index.
Add to that, fewer analysts cover small-caps and generate research,* and the small-cap market is less homogenous than other equity segments, making it potentially opportunistic ground for active managers.
*The average number of analysts covering small-cap companies is 6, compared to 17, 15, and 14 for U.S. large-cap, international developed, and emerging market companies, respectively. (Data: FactSet as of Feb. 21, 2017, based on the number of analysts with ratings on companies within the Russell 2000 Index, the Russell 1000® Index, the MSCI EAFE Index and the MSCI Emerging Markets Index, respectively.)
Source: FactSet Research Systems, Dec. 31, 2016. Most recent data available.
What does this mean for investors?
Inefficiencies can translate to active opportunities that could possibly wash away if investors adhere to an index and follow small-caps through market ups and downs. On the other hand, these same factors represent opportunities for active managers who are looking for an appropriate set of small-cap securities while taking advantage of pockets of inefficiencies. Choosing a skilled active manager can help make a big difference when navigating this asset class.
IMPORTANT RISK CONSIDERATIONS
Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and summary prospectuses, which may be obtained by visiting our fund literature page or calling 877 693-3546. Investors should read the prospectus and the summary prospectus carefully before investing.
Investing involves risk, including the possible loss of principal.
Past performance does not guarantee future results.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.
Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
The views expressed represent the Manager’s assessment of the market environment as of February 2017, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe.
The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe.
The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index designed to measure equity market performance of developed markets, excluding the United States and Canada.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index designed to measure equity market performance across emerging market countries worldwide.
Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.