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Updated Feb 8, 2012
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NEW 2011 Market Review – The year in review (PDF)
January 2012
Layla Hirschfelt, Product Manager
The year 2011 presented investors with a host of challenges — including natural disasters in Asia, political upheaval in the Middle East and the carryover from 2010 of the euro zone debt crisis. This report provides an analysis of 2011 performance of global equity markets, covering major world regions, all three style components — size, valuation and stability — and comparisons to historical results.
NEW International small cap: Defining a promising asset class (PDF)
December 2011
Mat Lystra, Senior Research Analyst
Where will investors turn next in their search for diversification and returns enhancement? Russell Indexes believes that the global ex-U.S. small cap asset class will feature prominently as investors seek a broader international equity opportunity set. This paper defines the international small cap asset class and contrasts the construction of various global small cap indexes and the resulting implications for a global equity portfolio.
The Russell-Axioma Developed ex-U.S. Factor Indexes (Long-only) (PDF)
January 2012
Barry Feldman, Ph.D., CFA, Senior Research Analyst
The Russell-Axioma Developed ex-U.S. Large Cap Factor Indexes (Long-only) comprise a powerful set of tools for investors seeking to access and manage factor exposures in developed equity markets outside the United States. These indexes are based on the same design principles and construction methodology that underpin the Russell-Axioma U.S. Factor Indexes. This paper provides an overview of the Russell-Axioma Factor Indexes and includes an introduction to equity factor indexes; a discussion of the Russell-Axioma Factor Index construction methodology and its benefits; and a description of the factors currently implemented in the series.
Global Markets Exploration: An analysis of the Russell Stability Indexes™ in Asia Pacific markets (PDF)
December 2011
Noriyuki Oharazawa, Index Strategy Director
In this Global Markets Exploration report we present an overview of the Russell Stability Indexes. We compare the Russell Asia Pacific Defensive (RAPDEF) and Russell Asia Pacific Dynamic (RAPDYN) indexes in terms of their regional breakdowns, country distributions and sector profiles. Finally, we contrast RAPDEF and RAPDYN performance over time.
Russell U.S. Small Cap Investment Discipline Indexes: Performance and portfolio characteristics (PDF)
November 2011
Kyla Roberts, Research Analyst
In September 2011, Russell launched the Russell U.S. Small Cap Investment Discipline Indexes (SC IDIs), extending the depth and variety of its investment discipline offerings. Like the innovative and transparent Russell U.S. Large Cap Investment Discipline Indexes, the SC IDIs are designed to use rules-based security selection to produce performance similar to the average small or small-mid cap investment manager following a particular investment discipline. They are intended as tools to gain focused exposures to particular investment disciplines through index-linked products — such as ETFs — or to help define a given manager’s investment approach. In this analysis, we examine the Small Cap Investment Discipline Indexes’ simulated historical performance and equity characteristics.
The Russell World Cap Index: The benchmark for the institutional investor (PDF)
October 2011
Tom Goodwin, Principal, Wealth Econometrics LLC
We believe there will be a sea change in U.S. investors' use of benchmark indexes to measure their equity exposures. The popular practice of “mix-’n’-match” — using one index provider’s benchmark for domestic equity, and another’s for international equity — is based on a traditional strategic asset allocation split, between domestic and international equity exposure, which is out of date. This paper makes the case for using the Russell World Cap Index as an equity benchmark. It has the virtue of closely matching the segments in which many U.S. institutional investors are already invested. At the same time, it facilitates travel further down the road to a fully global perspective.
The Russell-Axioma U.S. Long-only Factor Indexes (PDF)
October 2011
Barry Feldman Ph.D., CFA, Senior Research Analyst
The Russell-Axioma U.S. Long-only Factor Indexes are a powerful set of new tools designed to serve as blueprints for investment products that can be used by institutional asset managers, other informed investors and their advisors to analyze factor exposures in portfolios. Products based on these indexes could make it possible for more investors to trim or add factor exposures with an ease that until now has been enjoyed only by the largest and most sophisticated asset managers. This paper summarizes the design principles of the Russell-Axioma U.S. Factor Indexes and reports key aspects of their historical performance.
Market Review: Eurozone equity markets – Portugal, Ireland, Italy, Greece and Spain (PDF)
October 2011
Kyla Roberts, Research Analyst
In this analysis, we examine the PIIGS equity markets and we compare them to the Russell Global and Russell Developed Eurozone Indexes. We find that although the PIIGS have generally experienced elevated risk and reduced return, they vary widely in terms of characteristics such as size, style and sector weights. In addition, individual PIIGS' equity markets have varied in both their riskiness and their performance.
Russell U.S. Large Cap Investment Discipline Indexes (PDF)
October 2011
Mark Paris, Senior Research Analyst
In 2011, Russell Indexes launched the Russell U.S. Large Cap Investment Discipline Indexes (LC IDIs), innovative new tools for investors. While not meant to be substitutes for actively managed portfolios, the LC IDIs provide focused exposures to characteristics typical of several common approaches to equity investing. Key questions users might have are: How have these investment strategies performed? And, importantly, what portfolio exposures have these LC IDIs contained? In answering these questions, this paper explores these issues from a historical perspective.
Expansion of the Russell Stability Indexes: the global series (PDF)
October 2011
Mark Thurston, Head of Global Equity Research, Investment Division
The global series of the Russell Stability Indexes™, like its U.S. counterpart, divides equity markets into defensive and dynamic components, which measure an important third dimension of style™ – stability. Stability indexes lend flexibility to benchmarking managers and help increase investors' understanding of what has driven results. These indexes can be effective tools for gaining direct passive exposure to potentially compelling risk and return characteristics, tactically or strategically.
Origins of the Russell Investment Discipline Indexes (PDF)
October 2011
Jon A. Christopherson, Ph.D., Research Fellow Emeritus
The new Russell Investment Discipline Indexes (IDIs) are an innovation for Russell in at least two ways: they track the performance of more specialized investment habitats than a broad market, and they are not strictly capitalization-weighted (float-adjusted). Each IDI is designed to reflect the average performance of a group of managers who share a similar investment philosophy. To help you understand how and why the IDIs differ from Russell's benchmark indexes, this paper offers a historical perspective on the overall evolution of Russell Indexes.
Global Markets Exploration: A tailored view of Asian markets through Russell Custom Indexes (PDF)
October 2011
Noriyuki Oharazawa, Index Strategy Director
Custom indexes represent an opportunity for investors to achieve individualized exposures corresponding to their investment objectives; the accuracy and flexibility of such indexes enable their adaptation to investors' distinct strategies. This report showcases examples of Russell Custom Indexes in Asia ex-Japan markets to demonstrate the targeted exposures that custom indexes can provide. In particular, we consider custom indexes constructed by custom sector, custom region and alternative weighting methods.
Global Markets Exploration: Russell Global Sectors in the Russell Asia ex-Japan Index (PDF)
September 2011
Noriyuki Oharazawa, Index Strategy Director
With the increasing use of sector indexes as portfolio management tools for risk analysis and as a basis for direct investment via ETFs, sector classification has come to the forefront in global investing. The effective use of sector data in investment and portfolio management can illuminate opportunities for sector-exposure strategies in global investing. This report focuses on the Russell Asia ex-Japan Index to introduce Russell Global Sectors (RGS) and demonstrate its practical applications.
Market review: The structure of global equity markets at Russell Index Reconstitution June 2011 (PDF)
July 2011
Mary Fjelstad, Senior Research Analyst
In this snapshot of global equity markets at Russell Index Reconstitution, we observe a world that in many respects looks like it's in a solid economic recovery. Europe’s position in global equity markets has improved, global equity market levels are up, and cyclical sectors generally have done well. The signals are mixed, however. The emerging market growth machine may be slowing: India and China, and to a lesser extent Brazil, underperformed the Global Index during Recon Year 2011. The global financial services sector continues to struggle.
Global Markets Exploration: Fundamental Indexes – An alternative view of the Asia Pacific Region (PDF)
July 2011
Noriyuki Oharazawa, Index Strategy Director
While fundamental indexes tend to be studied in the context of the U.S. equity market, this paper focuses on the Asia Pacific region as a case study, outlining the characteristics and performance of the Russell Fundamental Asia Pacific Index.
Russell Index Country Guidebook (PDF)
June 2011
The Guidebook seeks to provide insights into the many factors considered when determining a country classification at the developed, emerging or frontier market level. It also provides a selection of data points that can be used to assess the general directional health of a market or an economy, and evaluate performance relative to other countries and regions.
The United Arab Emirates and Colombia: Why they belong in emerging markets indexes (PDF)
June 2011
Mat Lystra, Senior Research Analyst
We examine the UAE and Colombia relative to the rest of the countries represented in the Russell Emerging Markets Index and median indicators from the Russell Frontier Index. Using elements of Russell's country classification rules, along with some common measures of market size, we find evidence that these two countries are more appropriately classified as Emerging rather than Frontier.
Defensive equity: Is the market mispricing risk? (PDF)
June 2011
Bob Collie, FIA, Chief Research Strategist, Americas Institutional
John Osborn, CFA, Director, Consulting, Americas Institutional
Intuitively, you might expect stocks that are less risky than other stocks — stocks we refer to as defensive stocks — to deliver lower returns than the broad market over the long term. That does not seem to have been the case, however. Download this research to learn how a defensive equity strategy could offer the possibility of a reduction in portfolio risk and a more attractive trade-off between risk and reward.
Russell style index methodology update (PDF)
April 2011
David Cariño, Ph.D., Research Fellow
In 2010, Russell reviewed its methodology for constructing growth and value style indexes and found opportunities for improvement in two areas: selection of growth input variables to the style algorithm, and development of a method for reducing turnover at reconstitution. Changes to the methodology will be implemented at the June 2011 reconstitution; this report provides details of Russell's research into growth and value style methodology, which led to those changes.
Market Review: Diversification benefits, risk, and alpha potential of global equity markets (PDF)
April 2011
Sarah Orzell, Associate Research Analyst
Mary Fjelstad, Senior Research Analyst
When constructing investment portfolios, investors may benefit from information about which markets have offered greater opportunities for skilled active managers as well as which markets provided attractive diversification potential at reasonable levels of risk. In this paper we look at the correlation, volatility and CrossVol™ of global equity markets.
Assessing Country Risk in Africa and the Middle East (PDF)
April 2011
Mat Lystra, Senior Research Analyst
The recent regional upheavals in the African and Middle East regions have led Russell Indexes, as a global index provider, to conduct a review of some widely used economic and stability indicators — specifically, their ability to predict country risk.
Correlations have fat tails, too (PDF)
April 2011
Bob Collie, FIA, Chief Research Strategist, Americas Institutional
You are probably familiar with the idea of fat tails — extreme outcomes can occur more frequently (i.e., tails are fatter) in practice than implied by a normal distribution. However, many investors haven't realized that volatility does not fully illustrate the uncertainty associated with asset returns — correlations have fat tails, too. This paper outlines why traditional modeling falls short and how investors may be relying too heavily on correlation statistics when making decisions about liability hedging and diversification.
It's the Market: Russell Indexes capture the active opportunity set
Spotlight on the Russell 1000® Index (PDF)
March 2011
Mary Fjelstad, Senior Research Analyst
Sarah Orzell, Associate Research Analyst
Marcie Seely, Russell Indexes
In 2009 Russell published research demonstrating that the Russell 1000 Index was superior to the S&P 500 Index in representing the opportunity set for active managers. In this paper we update that analysis with findings that the Russell 1000 Index continues to be a better proxy for the performance of active U.S. large cap equity managers than the S&P 500 Index.
Global Markets Exploration: Emerging Asia has arrived (PDF)
March 2011
Noriyuki Oharazawa, Index Strategy Director
Against the backdrop of high economic growth, developing equity markets and a spate of new listings, emerging Asia is becoming a market that attracts investors from around the world. Using data from the Russell Global Index, this issue of Global Markets Exploration studies emerging Asian markets and their development over the past 10 years.
U.S. Equity Annual Active Management Performance Review 2010 (PDF)
March 2011
Curtis Yasutake, Research Analyst
Active management results were mixed during 2010. In large cap and mid cap, only growth managers, as measured by Russell's Large Cap and Mid Cap Growth Equity Universe means, were able to surpass their style benchmarks. The average large cap and mid cap value and market-oriented managers lagged their respective indexes. In small cap, this trend was reversed, as the average market oriented and value managers were able to beat both the Russell 2000® and Russell 2500™ Indexes, while the average growth managers generated benchmark-like returns.
Global equity series part 3: Finding the fertile hunting ground: What type of global equity managers succeed, and why multi-manager makes sense in global equities (PDF)
February 2011
Rob Balkema, Global Equities Portfolio Analyst
In the third part of the four-part series, the author argues strongly in favor of combining boutique, style-diversified, high-alpha managers within a multi-manager structure, to best realize the potential from active management of global equities. As his research shows, the combination of global products and regional products, which emphasize local-market strengths, offers clients a higher probability of achieving excess returns.
2010 Market Review (PDF)
January 2011
Sarah Orzell, Associate Research Analyst
The year 2010 was characterized by mixed economic signals and global concerns over
sovereign debt in Europe, rising deficits in the U.S. and adverse market reactions to political crises, as seen in Asia following North Korea's military posturing.
The frontier markets of Asia-Pacific (PDF)
January 2011
Rachel Chong, Russell Indexes
This paper provides an introduction to the structures of frontier Asia-Pacific markets and their recent performance in the Russell Frontier Index.
The frontier markets of Africa (PDF)
January 2011
Sarah Orzell, Associate Research Analyst
Kyla Roberts, Russell Indexes
This paper is an introduction to African frontier markets, which represent $71.9 billion in total company market capitalization as of May 28, 2010, and 14.9% of the Russell Frontier™ Index as of September 30, 2010.
The frontier markets of Europe (PDF)
January 2011
Sarah Orzell, Associate Research Analyst
This paper serves as an introduction to the Europe region within the Russell Frontier™ Index, which represents $89.9 billion in total company market capitalization as of May 28, 2010, and 15.8% of the Russell Frontier Index as of September 30, 2010.
The frontier markets of the Middle East (PDF)
January 2011
Rachel Chong, Russell Indexes
Comprised of 218 constituents as of September 30, 2010, with 89.5% large cap and 10.5% small cap securities, the frontier Middle East region represents 44.9% of the Russell Frontier Index.
The Third Dimension of Style™: Introducing the Russell Stability Indexes (PDF)
December 2010
Dave Hintz, CFA, Head U.S. Equity Research, Investment Division
In addition to market capitalization and (growth/value) style, Russell is now including a third dimension, called "stability," in its benchmarks. Stability is based on a powerful set of descriptive variables that, in certain market environments, do more to explain money manager performance than traditional style measures do. One end of the stability dimension is labeled "defensive" and the other is labeled "dynamic."
Emerging markets are in style (PDF)
Decemer 2010
Pradeep Velvadapu, Senior Research Analyst
Mary Fjelstad, Senior Research Analyst
For over 20 years, Russell has shown that style is an important dimension to distinguish distinct characteristics of individual stocks and markets. Using the Russell Emerging Markets Mega Cap Indexes, we demonstrate that style matters in emerging markets: growth and value performance is divergent; there has been a cyclical pattern to style returns; and emerging market style indexes have displayed attractive performance characteristics.
Global Markets Exploration: Exploring small cap markets in the Asia-Pacific region (PDF)
November 2010
Noriyuki Oharazawa, Index Strategy Director
In this issue, we examine the Asia-Pacific region. Markets in China and other Asia-Pacific countries – especially large cap markets – have seen remarkable growth in the past decade.
The Russell Equal Weight Indexes: An enhancement to equal weight methodology (PDF)
October 2010
Pradeep Velvadapu, Senior Research Analyst
While traditional market capitalization weighting is an excellent choice as benchmarks for active management and as the basis of investable products, investor interest in "alternative" index weighting methodologies, such as equal weighting and fundamental weighting, is growing. In this paper we provide an overview of some of these alternatives and a broader analysis of equal weighted indexes.
Market Review: Frontier markets join the allocation conversation (PDF)
October 2010
Sarah Orzell, Associate Research Analyst
Investors continually search for opportunities to manage risk in their portfolios via diversification. Recently, investors have turned their attention to frontier markets and are exploring the potential diversification benefits such markets may offer.
Good intentions, flawed implementation (PDF)
October 2010
Kyla Roberts, Russell Indexes
This paper argues that even after the float adjustment process has ended, many of the benefits of float adjustment have not materialized, due to lack of transparency and a float-adjustment practice known as "float banding." The method results in nearly all securities in the index being overweighted relative to Russell's assessments of their true float-adjusted market caps, causing visible differences between the performance of the IPC and Russell Mexico Large Cap indexes.
Global equity series part 1: Globalization, equity markets evolution and the perils of home-country bias (PDF)
September 2010
Rob Balkema, Global Equities Portfolio Analyst
In this note, we explore the evolution of markets and economies over the past 25 years, cite the forces that set globalization in motion and, more importantly, look closely at what this has meant for investors in equity markets.
Global equity series part 2: The new face of global equity asset management (PDF)
September 2010
Rob Balkema, Global Equities Portfolio Analyst
In part one of this series, we considered the impact of globalization on country economies and equity markets and flagged the detrimental effects of home-country bias (i.e., lower return with greater risk).
Measuring alpha potential in the market (PDF)
September 2010
Paul Bouchey, CFA, Director of Research, Parametric
Mary Fjelstad, Senior Research Analyst, Russell Indexes
Hemambara Vadlamudi, Senior Research Manager, Parametric
In this paper, we introduce the Russell-Parametric Cross-Sectional Volatility Indexes and explore potential uses for those indexes. We establish a strong positive relationship between cross-sectional volatility and active manager dispersion and anticipate that CrossVol will be informative in all stages of the investment management process.
Compelling and diverse return opportunities (PDF)
September 2010
James Pexton, Manager, Investment Reporting
Frontier market development offers exciting opportunities reminiscent of those offered by emerging markets. The growing strength in frontier markets has increased the depth in stock markets, market liquidity, and the opportunity set for active stock selection processes. The development of these economies continues to provide not only richer universe representation, but also offers skilled managers significant alpha potential.
Market Review: The structure of global equity markets at Russell index reconstitution June 2010 (PDF)
July 2010
Mary Fjelstad, Senior Research Analyst
This commentary examines the structure and characteristics of global equity markets at Russell Reconstitution, putting the BRIC countries — Brazil, Russia, India and China — in the spotlight. Our focus on these four countries highlights how the Russell Global Indexes, which are constituted on a global-relative rather than country-first basis, illuminate the structure of the world equity markets in terms of emerging vs. developed countries; regional distribution; sector and style
Global Markets Exploration: Comparing small cap stocks to large cap stocks in developed markets (PDF)
June 2010
Nori Oharazwa, Index Strategy Director
The Russell Global Index takes a global-relative approach to defining cap size. This uniform capitalization cut between small and large cap stocks allows for differences in characteristics to become clearer. What characteristics do small and large cap stocks reveal when compared within the Russell Global Index?
The effect of banding on the Russell Indexes (PDF)
April 2010
Pradeep Velvadapu, Index Research Analyst
The banding methodology was designed neither to prevent new securities from coming into an index nor to prevent existing securities from leaving, but rather to reduce the occurrences of companies' switching from one cap-tier assignment to another during one reconstitution and then back again the following year.
Identifying "Country of Risk" in the Wave of Globalization (PDF)
March 2010
Xin Yan, PhD. FRM, Senior Research Analyst
As technology advances and societies evolve, globalization is reshaping local cultures and melding global financial markets. Giant corporations, like Coca-Cola and Nestle, are taking advantage of this globalization wave by manufacturing products in various countries, sharing resources and operations across national borders and, most importantly, serving customers worldwide.
Market Review: Asian equity markets - A closer look (PDF)
October 2009
Noriyuki Oharazawa, Index Strategy Director
In 2009, Asian countries have led the world in recovery. Investors in Asian equities need to understand not only differences between Asian and Western developed markets, but also differences among Asian countries.
BRIC countries after Russell Index 2009 Reconstitution: a snapshot in time (PDF)
July 2009
Mary Fjelstad, Sr. Research Analyst
An examination of how the positions and roles of the BRIC countries — Brazil, Russia, India and China — have changed since Russell Index 2008 Reconstitution.
Surviving U.S. recessions with style (PDF)
May 2009
Mary Fjelstad, Sr. Research Analyst
Dave Hintz, Head, U.S. Equity Research, CFA
A look at how value and growth sectors performed during and after recessions.
Recessions and the U.S. equity
March 2009
Mary Fjelstad, Sr. Research Analyst
An interesting examination of market trends during and after recessionary periods.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
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