Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

S&P 600 Small Cap Index

What it is:

The S&P Small- Cap 600 Index consists of 600 small-cap stocks.  A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.

The S&P 600 is not to be confused with the S&P 500, which is composed of large-cap stocks.

How it works (Example):

Standard & Poor's adds new stocks to the index based not only on size, but also on financial viability, liquidity, adequate float size, and other trading requirements. This ensures that the index is comprised of higher-quality firms than its larger counterpart. Since the index contains only small firms, it represents a mere 3% of the value of the overall market. The S&P Small- Cap 600 Index is market value weighted, meaning that larger firms have a greater influence on the index's performance than smaller firms.

Why it Matters:

Though not as widely followed as many other indices, the S&P Small- Cap 600 Index arguably contains a mixture of more stable and profitable firms. As a result, the S&P 600 has outperformed the Russell 2000 by an average of 3% per year throughout the past decade. In addition, it has outperformed the broader market by an even larger margin. As a result of this outstanding performance, the S&P Small- Cap 600 Index is quickly becoming a favorite for fund managers and smaller investors.