Some wild things are happening to our favorite indexes this year:
• S&P shows domestic value stocks winning the performance race while Russell shows just the opposite, with growth outperforming value.
• Surz domestic indexes show the stuff in the middle going wild, with mid cap companies outperforming both large and small. At the same time, core companies, defined as neither value nor growth, have underperformed both value and growth.
• Outside the US, the EAFE (Europe Australia Far East) index has outstripped both S&P and Russell, but it has far underperformed the broad foreign market – the EAFE index has been easy to beat.
These are important considerations because we rely on these indexes to show us who is winning and losing. In the first half of 2007, our assessments of success or failure will rely very much on our choice of benchmarks.
Name brands disagree in 1st half of 2007?
“It doesn’t matter which style indexes you use because they’re all about the same.” This statement is generally true, but not for the two most popular indexes, Russell and S&P, in the first half of 2007. The S&P large cap value index outperformed the Russell 2000 value index by 210 basis points, and the Russell 2000 growth index outperformed the S&P growth index by 40 basis points. Similar results are observed for the Russell 1000 indexes versus the S&P500. In addition to the performance evaluation dilemma this creates for investors and consultants, investment managers will find that they have been rewarded or penalized for tracking one of these benchmarks. It’s very complicated. This type of discord, while infrequent, is explained by differences in methodology that can be best understood by considering how stocks in the gray area, between value and growth, are treated by S&P and Russell.
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