As defined by Investopedia, stock market (or equity) indexes are defined as “composite measurements reflecting price movements of component stocks…[used] as a benchmark to gauge portfolio performance and as a barometer for overall market sentiment.” Two of the most popular small-cap indexes in the U.S. are the Standard and Poor’s (S&P) 600 Index and the Russell 2000 Index.
As denoted by its name, the S&P 600 only tracks 601 small-cap stocks whose market capitalization lies between $850 million and $3.5 billion. The Institutional Investor distinguishes the S&P 600 from the Russell 2000 index by its earning requirements, which ultimately are used to determine the quality of the index. It also says that “the S&P SmallCap 600 quality effect can be observed in the four-factor (various measures of profitability, growth, safety, and payout) regression that adds quality to the three original factors identified in a 1993 edition of Journal of Economics: market, size, and value.” Generally, it is for this reason that the S&P 600 outperforms the Russell 2000.
The Russell 2000 is comprised of 2,000 small-cap stocks and, like the S&P 600, cannot be directly bought or sold, but can be traded through index futures, ETFs, and mutual funds. Some EFTs that track the S&P 600 are the iShares Core S&P Small-Cap ETF (IJR) and the Invesco S&P SmallCap Value With Momentum ETF (XSVM). The largest Russell 2000 Index EFT is the iShares Russell 2000 EFT IWM.