Catherine Yoshimoto
Director, Product Management
Key takeaways:
- Many investors use size and style indices to construct their US equity portfolios, but there are significant differences in the way different index providers define large-/mid-/small-cap stocks and how they define value and growth stocks
- A historical analysis of different size/style portfolios showed that a “mix-and-match” approach produced unexpected risk outcomes
- Our conclusion is that it’s best to stick with the size/style indices from a single provider
Points of differentiation:
- This research was supported by actual fund return data using Vanguard ETFs
- We looked at size/style ETFs tracking indices from two providers
- FTSE Russell’s modular US equity index framework can help investment portfolios achieve their investment goals with greater precision
What does our research mean for investors?
The research highlights some of the less-known differences between similar-sounding US equity size and style indices. In our analysis, we showed that combining indices from different providers based on the headline index name alone could lead to overlaps, gaps and unintended risk factor exposures. In summary, it’s probably best to use size and style indices from one provider.
