April 08, 2022
As of February 28, 2022, small-cap equities – as measured by the Russell 2000®
Index – are currently cheaper than any point in the last twenty years and are also
at their lowest relative valuations versus large-cap securities (the Russell 1000®
Index) for that period. In fact, all three of the Russell 2000 standard and style
indices, the Russell 2000, 2000® Value, and 2000® Growth indices, are at valuation
levels unseen in the last 20 years.
Russell 2000 Index vs. Russell 1000 Index

Chart source: FactSet, Bank of America US Equity and Quant Strategy.
Data as of February 28, 2022.
What this means for investors
Valuations play an important factor in future returns, in our view. With largecaps trading at historical premiums and small-caps at historical discounts, we think now might be an appropriate time to consider small-cap equities.
The last time small-caps traded near these relative values was in February 2003. A look back at the relative returns over the subsequent 1-, 3-, and 5-year periods shows that small-caps meaningfully outperformed large-caps as measured by Russell 1000 and S&P 500.
Performance from February 28, 2003
Indices |
1 year annualized |
3 year annualized |
5 year annualized |
Russell 2000 Index |
64.41 |
28.05 |
15.10 |
Russell 2000 Value Index |
63.98 |
29.16 |
15.35 |
Russell 2000 Growth Index |
64.86 |
26.76 |
14.72 |
Russell 1000 Index |
39.69 |
18.15 |
12.24 |
S&P 500® Index |
38.52 |
17.11 |
11.64 |
*Price-to-earnings (P/E) ratios for the below charts are as follows:
Russell 1000®: 19.17x
Russell 2000: 14.48x
Russell 2000® Value: 12.40x
Russell 2000® Growth: 17.93x
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