The Standard & Poor’s 500 Index (S&P 500) and the Russell 1000 Index are both large-cap stock indices that monitor stocks of publicly traded firms.
Because investors perceive these two indexes to represent the strength of the major U.S. corporations. They are as a benchmark for the whole stock market.
However, the eligibility conditions for their components, as well as the technique for include those components, varied significantly.
S&P 500 vs. Russell 1000
The S&P 500 is the most well-known gauge for large-cap companies in the United States, aside from the Dow Jones Industrial Average (DJIA). The index has existed since 1923.
It is made up of 500 publicly traded large-cap stocks, as the name suggests. Its purpose is to track the performance of U.S. stocks traded on U.S. stock exchanges. Hundreds of mutual funds and exchange-traded funds utilize the index as a benchmark (ETFs).
The Russell 1000 is a more recent index, founded in 1984. It’s also not as famous as the S&P 500, but it shows a similar range of stock market performance.
It is a subset of the greater Russell 3000 Index, which comprises 3,000 equities.
The Russell U.S. indexes account for nearly all of the equity market in the United States. This includes the top 1,000 stocks in the United States, accounting for 93 percent of the overall equity market.
The Russell 2000 small-cap index is of the smaller 2,000.
The composition of the two indices is clearly different, with one index having 500 stocks and the other about 1,000.
While the S&P 500 is made up entirely of large-cap firms, the Russell 1000 includes some mid-cap stocks in its portfolio.
The S&P 500 and Russell 1000 use different methods to determine the index components. Both begin with defining the criteria for inclusion in a larger, more universal index, and then gather a subset of the universal index as the final component list.
They both include characteristics such as the company’s headquarters, revenue sources, and the location of the majority of its assets.
Stocks must also trade on the New York Stock Exchange (NYSE) or the Nasdaq Stock Market (NASDAQ).
The eligibility conditions for S&P Dow Jones Indices’ Total Market Index are determined and ranked by float-adjusted market capitalisation (or market cap for short).
The market cap is derived by multiplying the total number of outstanding shares by the current stock price. It represents the company’s overall value.
Companies must have a market capitalization of $13.1 billion or more to be for inclusion in the S&P 500.
The S&P 500 had a median market cap of $34 billion in December 2021, and the businesses represented over 80% of the US equities market.
Companies must normally have achieved positive net income or earnings for the sum of the previous four consecutive quarters, including the most recent quarter, depending on the type of S&P index—such as the S&P 1500 or S&P 500.
This organization’s full-time professionals gather monthly to decide which 500 companies from the Total Market Index will be in the S&P 500.
The Russell 1000 stocks are chosen by the FTSE Russell organization using a rules-based approach.
The Russell 3000E, which represents the broader equity market, includes the top 4,000 stocks by total market capitalization.
It is made up of the top 1,000 stocks, which are listed in descending order by total market capitalization.
Stocks around the inclusion criteria are subject to more stringent standards, therefore the index may contain slightly more or fewer than 1,000 stocks. Companies having a market capitalization of less than $30 million are often ineligible for inclusion in any of the Russell U.S. indices.
The Russell 1000 had an average market cap of $603 billion. Also a median market cap of $14.45 billion as of November 2021.
The median market capitalization of the Russell 1000’s stocks represents the mid-cap composition. It is essential because mid-cap equities often have a higher-risk, higher-return prospective profile. As a result, the Russell 1000 index is thought to be slightly more volatile than the S&P 500 index.
Every minute of every working day, stock prices move. As a result, the values of publicly listed companies are continually changing, and it is up to the index administrators to keep up with these changes in order for the index to reflect current events. Rebalancing is the process of adjusting the weighting of assets in a portfolio.
The S&P 500 and Russell 1000, on the other hand, vary on distinct schedules.
The S&P 500 portfolio is rebalanced quarterly and reconstructed once a year.
Furthermore, after one of the committee’s monthly sessions, the committee review process may approve ad-hoc adjustments.
Once a year, at the end of the second quarter, the Russell 1000 is completely reconstructed.
Initial public offering (IPO) additions and float revisions will also cause quarterly changes in the index.
The frequency with which mutual funds and ETFs benchmarked to an index are updated can have an impact on how well they perform in comparison to market averages.
Performance and Volatility
Although the composition and eligibility of these indices varied somewhat, the performance and volatility indicators are startlingly comparable.
Over a 20-year period, the indices are more than 94 percent connected, and their dividend-adjusted performance is also extremely close, as shown in the chart below.
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