TSCM Flash Thought
Objects in the Small & Mid Cap Benchmarks are Larger Than They Appear!
- The annual (soon to be semi-annual) reconstitution of the Russell Indexes is designed to remove stocks that have grown too large for their “small” or “mid” designations.
- While there have been extreme outliers in recent years (Super Micro for the small cap Russell 2000 in 2024 and Palantir for the Russell Midcap in 2025), even after eliminating those, the size profile for each index steadily marched upward as seen by their weighted averages of market capitalizations.
- Investors should be mindful that solely relying on the small or mid cap indexes may not provide the true exposure to the market segments they seek.
Source: Jefferies (data is from immediately prior and following each year’s reconstitution)
Russell 2000® Index: The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index, which is designed to represent approximately 98% of the investable U.S. equity market.
Russell Midcap® Growth Index: The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes Russell Midcap Index companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium-term (two-year) growth, and higher historical sales-per-share growth (five years).
Palantir Technologies Inc.: An American publicly traded company that develops data integration, analysis, and intelligence software platforms for government agencies, defense organizations, and commercial enterprises.
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