Is the index that performs better really the better Index?

What makes a great index? A typical response might be “performance” – particularly with reference to smart beta indexes which may offer the potential for enhanced index returns over traditional market capitalization indexes. But performance isn’t the only — or even the most important — way to gauge the value of a benchmark. The better index, therefore, isn’t necessarily the one with the best returns; rather it is one that clearly defines the universe of securities it is measuring, doing so consistently with disciplined, transparent methodology.

The Russell 2000® Index is a prime example. It is a market cap-weighted index, designed for a single purpose: to provide investors with a tool for measuring the performance and characteristics of the small-cap segment of the U.S. equity universe. It has become the most widely followed small cap benchmark in the U.S. institutional marketplace because of the accuracy with which it reflects this small-cap sector. It does this by adhering strictly to several basic rules:

The Russell 2000 Index is comprehensive.  Many competing indexes claim to represent the small cap segment of U.S. equities, but none are fully comparable: some are subsets, some have gaps, and others blur the lines between small stocks and large/mid cap stocks. The Russell 2000 comprehensively covers the investable U.S. small cap market.

Market coverage of the Russell 2000 Index vs. other indexes