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FTSE Russell

January 07, 2016 11:15 ET

Small Cap Stage Setting: Predictive Power of Russell 2000® Index Lessens as the Year Progresses

FTSE Russell

SEATTLE, WA--(Marketwired - Jan 7, 2016) - With US stocks down sharply in the first trading week of 2016, including a 2.2% fall for the US small cap Russell 2000® Index in the first two trading days, FTSE Russell examined the last 20 years of US small cap market returns to see if early returns held any predictive sway over full-year returns.

Twenty years of market returns suggest that the predictive nature of small cap performance lessens as we get further into the year. In 70% (14 of 20) market years between 1996 and 2015, a positive first trading day for US small caps led to a positive full year, and vice versa. This direct positive and negative correlation decreases to 65% (13 of 20) for the first two trading days, 60% (12 of 20) for the month of January and to 40% (8 of 20) for the first quarter.

The attached scatter chart plotting first trading day and full-year Russell 2000 Index returns over the last two decades helps graphically illustrate this relatively high correlation.

Tom Goodwin, Senior Research Director, FTSE Russell:
"While past performance is no guarantee of future results and US small cap market performance is inherently less predictable than other asset classes, historical analysis through market indexes can help investors identify potential patterns which may inform greater market understanding. None of us have a crystal ball, but objective analysis through market indexes can provide additional perspective to investors charting a plan of action."

More research and insights from Tom Goodwin and other FTSE Russell index experts can be found on the new FTSE Russell blog.

About FTSE Russell:

FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 80 countries, covering 98% of the investable market globally.

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Approximately $10 trillion is currently benchmarked to the FTSE Russell indexes. For over 30 years, leading asset owners, asset managers, ETF providers and investment banks use FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance, and embraces the IOSCO principles. FTSE Russell is also focused on index innovation and client collaboration as it seeks to enhance the breadth, depth and reach of its offering.

FTSE Russell is wholly owned by London Stock Exchange Group. For more information, visit www.ftserussell.com.


http://www.marketwired.com/press-release/small-cap-stage-setting-predictive-power-russell-2000r-index-lessens-as-year-progresses-2086395.htm

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