Editor's note: Longtime readers are familiar with the power of investing in small-cap stocks... Plenty of opportunities are hiding outside of the broad market S&P 500 Index. So that means keeping an eye out for "hidden gems" in smaller indexes like the Russell 2000.
Editor's note: Longtime readers are familiar with the power of investing in small-cap stocks...
Plenty of opportunities are hiding outside of the broad market S&P 500 Index. So that means keeping an eye out for "hidden gems" in smaller indexes like the Russell 2000.
To that point, we're sharing an essay today from our friend Joel Litman. Regular readers will recognize him – he's the founder and chief investment officer of our corporate affiliate Altimetry.
This essay from Joel was most recently published in the April 15 edition of his firm's Altimetry Daily Authority e-letter. In it, he shares some history on the Russell 2000. And he discusses why it's such a big deal for tiny stocks to join this index...
Helping Investors Buy In Earlier Than Ever
By Joel Litman, chief investment officer, Altimetry
George Russell only wanted to make his grandfather proud...
He didn't plan to change the entire investing industry.
George started working at his grandfather's business, Frank Russell Company, in 1958. Although it had been around for more than two decades, it was still pretty much a one-man show.
Frank Russell was a retired Wall Street stockbroker just looking to keep busy. So he worked with a handful of local clients.
George joined the team after graduating from Harvard Business School. But he didn't have much time to adjust. Three months later, his grandfather died... and George found himself at the helm.
The company he helped build now manages nearly $400 billion in assets under management.
And as you'll see, he transformed all of Wall Street in the process...
There's one financial mandate you need to know about before April 30... It drives what Wall Street money managers can and can't do... and every year, it sets in motion a $10 trillion market move... catapulting certain stocks higher. Last year, one analysis shows you could have doubled your money 21 times, tripled it five times, and made more than 300% twice. See how you could profit from this financial mandate this year, too.
During George's first decade leading the business, pension funds were booming...
Companies would invest money on behalf of their employees so they'd be set for retirement. There was a problem, though... A lot of funds struggled to pick good investments.
None of these pensioners knew what they were looking at. Pension funds had a tough time getting good data on their investments. Their managers and brokers would all come up with different numbers.
And that made measuring performance a hassle.
George created the Portfolio Activity Report ("PAR"), the gold standard for measuring pension performance.
The report tracked a fund's holdings, buys, and sells. It was a crucial single source of information for fund managers.
George and the team soon realized there was a lot of demand for a stock data "one-stop shop." So the company began building indexes that tracked stock performance uniformly. Pension funds could use the data to make better investment decisions.
Even back in the 1980s, pension funds weren't satisfied with doing well...
They wanted to beat the S&P 500. To do that, investors had to look outside the S&P 500.
So the Russell team took all the companies it could track – about 3,000 in total – and turned that data into its own index.
Most folks these days are familiar with the Russell indexes. The Russell 3000 is still pretty much the definitive universe of investible U.S. companies.
George and the team broke that up into two smaller indexes. They expected the Russell 1000 to be the more popular one. Since it holds the 1,000 largest publicly listed U.S. stocks, it's closer to the S&P 500.
But to their surprise, the Russell 2000 became the crowd favorite.
Investors loved this list of smaller, less-covered stocks. Folks realized that while these stocks were small, they could soon grow to be in the Russell 1000... or even the S&P 500.
It gave them a chance to buy in earlier than ever.
It's still a huge deal for stocks to join the Russell 2000...
They gain legitimacy, meaning a lot more investors can start buying in.
In fact, many institutional funds are required to buy what's in the Russell. It's the best way to track the index's performance.
And since investors are starting much closer to the ground floor... there's a lot more room for shares to run.
The S&P 500, the Nasdaq, and the Dow are still the world's most popular stock indexes. But the Russell provides some of the best investment-universe data out there.
If you're looking for some great hidden gems, start your search in the Russell 2000. Plenty of the smallest stocks are just waiting to grow into the larger indexes.
Regards,
Joel Litman Editor's note: For years, hedge funds have been exploiting a predictable market event related to the Russell 2000...
And as Joel says, if you know what's coming, you could double your money thanks to this little-known Wall Street mandate – which impacts $10 trillion worth of stocks.
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Information Technology
+7.0%
Consumer Discretionary
+4.34%
Communication
+3.99%
Real Estate
+2.53%
Financial
+1.36%
Materials
+0.15%
Industrials
-1.08%
Energy
-1.31%
Utilities
-1.7%
Health Care
-1.82%
Consumer Staples
-2.42%
* * * *
Industry Focus
Telecom Services
22
14
3
Over the past 6 months, the Telecom subsector (XTL) has outperformed the S&P 500 by +39.83%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #6 of 21 subsectors.
Top Stocks
AAOI
Applied Optoelectron
ADTN
ADTRAN Holdings, Inc
EXTR
Extreme Networks, In
* * * *
Top Movers
Gainers
ALB
+16.31%
ON
+10.35%
DELL
+8.92%
LITE
+8.16%
CHRW
+8.05%
Losers
SCHW
-7.63%
ABT
-6.0%
RCL
-5.8%
CCL
-5.24%
NCLH
-5.16%
* * * *
Earnings Report
Earnings Surprises
AA Alcoa Corporation
Q1
$1.40
Missed by $-0.15
ABT Abbott Laboratories
Q1
$1.15
Met estimate
* * * *
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