Table of Contents

Russell Small Cap Completeness Index

By

James Chen

Updated April 01, 2023

Reviewed by Julius Mansa

Fact checked by

Suzanne Kvilhaug

What Is the Russell Small Cap Completeness Index?

The Russell Small Cap Completeness Index is a market-capitalization-weighted index comprised of Russell 3000 stocks that are not included in the Standard & Poor's 500 Index. Constructing it in this way provides investors with a broad basket of small- and mid-cap assets that are uncorrelated to widely owned stocks like Apple (AAPL) and Amazon (AMZN). Each year, FTSE Russell reconstitutes the index to remove companies recently eligible for the S&P 500. This ensures the index remains uncorrelated to the broader market and helps minimize losses in the event of a downturn.

Key Takeaways

The Russell Small Cap Completeness Index includes small-cap and mid-cap stocks that are in the broad Russell 3000 Index but that are not part of the S&P 500.
By owning the Completeness Index plus the S&P 500, investors get access to a wide swatch of stocks that do not overlap.
The index is generally more susceptible to volatility than the Russell 3000 due to the more volatile nature of smaller cap stocks.
As of Feb. 28, 2023, the index also had a lower dividend yield than the Russell 3000 as smaller cap companies tend to prioritize cash for growth compared to dividends.
Investors can purchase the index through ETFs that track it.

Understanding the Russell Small Cap Completeness Index

The Russell Small Cap Completeness Index is comprised of a number of small cap stocks. As of February 2023, the Russell Small Cap Completeness held 2,436 different stocks. The median market cap for these stocks was just over $1.5 billion with the largest stock by market cap topping $106 billion.

The Russell Small Cap Completeness Index is comprised of nearly a dozen different industries. As of February 2023, the index was most heavily weighted towards technology and industrial companies. The index also held double-digit weight in the financials sector, consumer discretionary spending, and health care sectors. Though smaller weights, the Russell Small Cap Completeness also held stock in companies in real estate, energy, basic materials, consumer staples, utilities, and telecommunications.

As of Feb. 28, 2023, the Russell Small Cap Completeness had a one-year loss of 10.06%. It also posted a three-year return of 9.88% and 10-year return of 9.99%.

Russell Small Cap Completeness vs. Russell 3000

The Russell Small Cap Completeness Index is often compared to the Russell 3000. Both indexes are comprised of a wider range of companies compared to more popular indices such as the S&P 500. In addition, the two indexes actually hold most of the same companies. The primary difference between the two is the Russell Small Cap Completeness excludes the top 500 companies while the Russell 3000 includes these larger cap companies.

Because the Russell Small Cap Completeness excludes larger cap stocks compared to the Russell 3000, it often has different characteristics. For example, as of February 2023, the price/book of the Small Cap Completeness Index was 2.62, a potential indicator of being undervalued when compared to the higher 3.62 price/book ratio for the Russell 3000. However, because smaller companies may prioritize using excess cash flow for development as opposed to issuing dividends, the dividend yield may be smaller. As of February 2023, the Russell 3000's dividend yield of 1.68% was higher than the Small Cap Completeness yield of 1.35%.

Because of its prioritization of smaller cap stocks, the index is usually more volatile compared to others. For example, the standard deviation of the Small Cap Completeness Index over the past three years as of Feb. 28, 2023 was 26.53. This far exceeded the volatility of the Russell 3000 of 21.18.

Advantages of the Russell Small Cap Completeness Index

The benefits of investing in assets uncorrelated to the broader market can't go understated. It offers investors more diversification and a means to protect against downside risk. Constructing a portfolio with uncorrelated assets also allows the movement of one asset to partially offset a decline in another, thereby reducing the average volatility of a portfolio. This is a fundamental method to reduce large variations between companies, otherwise known as unsystematic or diversification risk. Sometimes buying uncorrelated assets doesn't result in a winning situation. In the event of a systemic crisis, comparable with the recent recession, most assets are exposed to a large amount of volatility.

Another advantage of this approach includes an opportunity to capture returns from outperforming assets and reinvest the profits in the underperformers. The Russell Small Cap Completeness Index and other assets like it serve as a reminder that uncorrelated returns can protect a portfolio when large-cap stocks tumble.

What Is the Main Downside to the Russell Small Cap Completeness Index?

Though the Russell Small Cap Completeness Index boasts a diversified holding, the index is more traditionally volatile than other indexes. This is because the index strips away the more stable, established larger companies in exchange for potentially higher returns due to small cap growth.

Are Small Cap Stocks Better than Large Cap Stocks?

Different investors may have different and alternating strategies that make one type of stock better for one type of investor. Very broadly speaking, larger cap stocks are often less volatile and considered less risky. On the other hand, small cap stocks usually lend themselves to potentially much higher returns. Small cap stocks may be better for investors seeking higher returns, whereas large cap may be better for investors looking for more stable returns.

What Are the Main Holdings in the Russell Small Cap Completeness Index?

As of Feb. 28, 2023, the Russell Small Cap Completeness Index held the most in Uber Technologies (UBER). It also held a heavy weight in Blackstone Inc (BX), Palo Alto Networks (PANW), and Snowflake (SNOW).

The Bottom Line

The Russell Small Cap Completeness Index is an investment vehicle that is comprised of over 2,400 smaller cap stocks. It is similar to the Russell 3000, though it does exclude the firms in the S&P 500. The index boasts broad diversification across companies and industries, though it experiences greater volatility due to the nature of smaller cap stocks.

Article Sources

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Russell Investments. "Russell Small Cap Completeness Index."

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