“A leopard can’t change its spots,” is an old saying rooted in the belief that a person’s core character doesn’t change over time. The same cannot be said of the markets, public companies or investment strategies, which is why the Russell Style Indexes have become such powerful tools for portfolio measurement and construction.
1987 marked the launch of the Russell Style Indexes, the first benchmarks to systematically categorize “growth” stocks and “value” stocks. As a quick refresher: a growth company can be thought of as being more closely tied to the economic cycle and as being valued for potential future earnings vs. realized earnings; companies with market prices that may be discounted relative to their earnings or other fundamental measures are commonly referred to as value stocks. Many companies fall somewhere in between, with partial allocations to growth and value.
Professional asset managers built their portfolios around these two types of investment strategies for many years—the Russell Style Indexes were the first benchmarks with which to measure their performance.1 Having identified the measurable size and style segments of the market, the Russell Indexes suite of benchmarks would grow to cover large caps with the Russell 1000® Index, small caps with the Russell 2000® Index, the corresponding growth and value indexes, and midcaps with the Russell Midcap® Index. With these, investors had the building blocks for US asset allocation and what would come to be known as the “equity style box”.
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