Russell Versus S&P/Barra Style Indices

Chart of the Week for April 22-28, 2005

As you are probably aware, Russell and S&P/Barra are two of the most respected and well-known providers of market performance indices in the financial services industry. Both providers offer style indices (value and growth) and indices for specific market capitalization ranges (small, mid, and large). Typically, the trends in style performance are consistent over any given time horizon. However, for the first quarter of this year, value outperformed growth in all of the Russell indices, whereas growth outperformed value in all of the S&P/Barra indices.

This style discrepancy can be explained by the construction of the indices. The Russell indices are constructed by assigning companies to a value or growth category based on their price-to-book ratio and their industry accepted forecasted long-term growth mean. In comparison, the S&P/Barra indices are constructed by assigning companies to a value or growth category based on their book-to-price ratio. Given certain market conditions, this simple distinction can cause a significant difference in the constituents of a benchmark universe and cause the style anomaly illustrated in the chart above.

So, what does this mean to investors? When comparing the performance of an investment to a benchmark, investors must make sure they are making an “apples-to-apples” comparison. Otherwise, their conclusion will be misleading and may cause them to make a wrong decision. At ICMA-RC, we encourage investors to take an active role in reviewing the performance of their investment options.

To learn more about the Russell and S&P Barra indices, we recommend visiting their Web sites at www.russell.com and www.barra.com.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.