At the end of this week, Russell Investments will introduce its annual recalibration of its indexes. If that sounds like an arcane process, it actually has some ramifications for investors. The Russell 2000 has become the most widely used benchmark for small-cap stocks, and when it is redefined, it will change what is considered a small cap.
For 2014, the new limit for the market value of companies listed in the Russell 2000 will be $3.1 billion after the redefinition, up from a limit of $2.6 billion in 2013. Thirty years ago, back in 1984, no company with more than $255 million in market value could be considered small cap.
These redefinitions of the indexes are necessary in part because stocks' value grows (or shrinks) so much within the course of a year. According to Russell, the largest stock in the Russell 2000 now has a market cap of more than $9 billion - which is no one's idea of a small-cap stock.
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