U.S. Equity Indexes: Institutional Benchmark Survey

Russell Indexes

Description

Russell Indexes
Russell Research
2009 Annual Benchmark Survey
U.S. Equity Indexes:
Institutional Benchmark Survey
Summary
The data for 2009 show that the market share of the Russell
Russell Indexes Investments family of indexes has increased, while that of its nearest
remain the preferred competitor declined—continuing a trend that has been in place for
benchmarks for more over a decade.
than 63% of U.S.
Russell Indexes remain the preferred benchmarks for more than institutional equity
63% of U.S. institutional equity products. products.
Russell U.S. Indexes market share by products benchmarked
70
60
50
40
30
20
10
0
2002 2003 2004 2005 2006 2007 2008 2009
Year
Russell S & P All others combined
Russell Investments // U.S. Equity Indexes: Institutional Benchmark Survey
% market shareAssessing and addressing the market’s need for
rational, transparent indexes
Building truly representative, objective and transparent benchmarks has always been the core
philosophy of Russell Indexes. As the previous chart demonstrates, the Russell methodology
has decisively won the market’s acceptance. Russell’s indexes surpassed S&P in terms of
market share in 2003 and have increased or maintained their lead ever since.
As shown in the table below, in the six years after Russell became the market share leader, the
number of products benchmarked to Russell Indexes has more than doubled.
Table 1: U.S. institutional equity products benchmarked
2002 2003 2004 2005 2006 2007* 2008 ...

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Informations

• Publié par: Undu
• Nombre de lectures: 96
• Langue: English

Extrait

Russell Research

U.S. Equity Indexes:

Institutional Benchmark Survey

2009 Annual Benchmark Survey

Summary

The data for 2009 show that the market share of the Russell

Investments family of indexes has increased, while that of its nearest

competitor declined—continuing a trend that has been in place for

over a decade.

Russell Indexes remain the preferred benchmarks for more than

63% of U.S. institutional equity products.

Russell Investments

//

U.S. Equity Indexes: Institutional Benchmark Survey

Russell Indexes

Russell Indexes

remain the preferred

benchmarks for more

than 63% of U.S.

institutional equity

products.

% market share

0

10

20

30

40

50

60

70

2009

2008

2007

2006

2005

2004

2003

2002

Year

Russell U.S. Indexes market share by products benchmarked

Russell

S & P

All others combined

Russell Investments

//

U.S. Equity Indexes: Institutional Benchmark Survey

/

p 2

Assessing and addressing the market’s need for

rational, transparent indexes

Building truly representative, objective and transparent benchmarks has always been the core

philosophy of Russell Indexes. As the previous chart demonstrates, the Russell methodology

has decisively won the market’s acceptance. Russell’s indexes surpassed S&P in terms of

market share in 2003 and have increased or maintained their lead ever since.

As shown in the table below, in the six years after Russell became the market share leader, the

number of products benchmarked to Russell Indexes has more than doubled.

Findings

As investing trends toward more specifi

c exposures, the process of choosing benchmarks

has evolved. Today, asset managers and their clients are demanding benchmarks that are

appropriate for each portfolio. As a result, institutional investors are increasingly using

coordinated families of indexes that segment the market by cap size and by style.

›

Of the major index providers, only Russell is truly diversifi

ed with 41% small cap products,

35% large cap and 18% mid cap.

›

By contrast, 91% of the products benchmarked to an S&P index use the large cap S&P 500.

›

Virtually all of the products benchmarked to a Wilshire index use the total market

Wilshire 5000.

Plan sponsors and asset managers are using the family of Russell benchmarks for consistent

and comprehensive coverage across all asset segments. Russell’s indexes are frequently used

in conjunction with one another.

Table 2: Most frequently used U.S. equity benchmarks by product

Index

Number of funds

Total assets ($ bil)

S&P 500

918

1,886.4

Russell 1000

®

Growth Index

397

455.7

Russell 1000

®

Value Index

376

554.0

Russell 2000

®

Index

284

216.3

Russell 2000

®

Growth Index

265

97.4

Russell 2000

®

Value Index

241

135.8

Russell Midcap

®

Growth Index

177

116.3

Russell Midcap

®

Value Index

137

118.7

Russell 3000

®

Index

116

187.0

Russell 1000

®

Index

110

185.9

2002

2003

2004

2005

2006

2007*

2008

2009

Russell

922

1,148

1,355

1,536

1,693

1,776

1,793

2,554

S&P

1,170

1,072

1,051

1,030

1,010

930

785

1,069

Wilshire

37

43

29

28

15**

18

13

24

NASDAQ

19

16

15

14

14

13

4

6

L

i

p

p

e

r

1

8

1

6

8

6

5

5

4

7

D

o

w

J

o

n

e

s

8

7

6

3

3

2

0

1

5

A

M

E

X

—

—

—

—

7

2

0

1

M

S

C

I

—

—

1

1

2

2

3

1

6

Other

172

222

326

336

357**

286

231

320

TOTAL

2,346

2,524

2,790

2,954

3,106

3,034

2,833

4,012

Table 1: U.S. institutional equity products benchmarked

* Data from July 12, 2007 is

pulled from Nelson Information’s

MarketPlace web database at

the end of May, with the exception

of 2007.

** The Wilshire Real Estate Securities

Index began being added to “Other”

in 2006.

Russell Investments

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U.S. Equity Indexes: Institutional Benchmark Survey

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p 3

Trends

›

In 2009, Russell Indexes showed strength across the product line. As shown in Table 3 below,

eight Russell index products saw double-digit growth.

›

Within the Russell family of indexes, the most signifi

cant growth was in the Russell 1000

Index, which was adopted by asset managers to benchmark an additional 50 products.

This 83% growth rate was consistent with overall growth in the Russell 1000 Index series.

Altogether, 880 products are now benchmarked to the Russell 1000 Index, the Russell 1000

Growth Index, and the Russell 1000 Value Index—an increase of 51% over the previous year.

›

The Russell Midcap

®

series of indexes now has a greater than 90% market share in the

midcap segment. Last year, the style indexes led the way, with the Russell Midcap Growth

Index growing by 70% as it added more products. The Russell Midcap Value Index did

nearly as well, growing by 65%.

Percentage change 2008–2009

Russell 1000 Index

83.30%

Russell Midcap Growth Index

70.20%

Russell Midcap Value Index

65.10%

Russell 1000 Growth Index

52.20%

Russell 2000 Value Index

49.70%

Russell Midcap Index

47.30%

Russell 1000 Value Index

39.20%

Russell 2000 Growth Index

35.90%

Table 3: Percentage change in Russell products

0%

20%

40%

60%

80%

100%

S&P 500

Russell 1000 Family

2009

2008

2007

2006

2005

2004

2003

2002

1998

1996

Russell 1000

®

Family vs. S&P 500

% of U.S. institutional equity products

Russell Investments

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U.S. Equity Indexes: Institutional Benchmark Survey

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p 4

Russell dominates style benchmarks

Russell pioneered style indexes in 1987 and continuously monitors its style methodology to

make sure it is representative of manager practice. The most recent data shows that Russell

enjoys a greater than 99% market share of products benchmarked to style indexes.

Today, investors are building increasingly sophisticated products with precisely defi

ned levels

of risk versus their benchmarks. Thus, they require a high level of precision in the indexes they

use, as well as the ability to provide consistency over a broad range of products. As a result:

›

46% of all U.S. equity investment products use Russell Style Indexes as their benchmarks.

›

In dollar terms, more than $1.6 trillion is benchmarked to Russell Style Indexes, with

more than $800 billion benchmarked to the Russell 1000 Growth and Russell 1000 Value

Indexes alone.

Percent benchmarked to Russell Style Indexes

To sustain its leadership in index construction, Russell regularly performs comprehensive

studies of style methodology, testing alternative approaches to its style index construction.

Thus far, results have confi

rmed that Russell’s existing two-variable model is the best

representation of the growth and value opportunity set. Russell is currently in an advanced

stage of research into the new dimensions of investment styles.

This commitment to superior product design, objectivity, reliability and transparency

explains why Russell’s Style Indexes have become the nearly unanimous choice of

knowledgeable investors.

Total benchmarked to

any style index

Total benchmarked to

Russell Style Indexes

Type

Products

Assets ($bil)

Products

Assets ($bil)

Growth

984

734.7

979

713.6

Value

886

865.1

882

863.5

Total

1,870

1,600

1,861

1,577

Table 4: Style investing market share: 2009

Russell products %:

Growth

99.49%

Value

99.55%

Growth

97.14%

Value

99.81%

Russell assets %:

Russell Investments

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U.S. Equity Indexes: Institutional Benchmark Survey

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p 5

Most frequently used indexes

There is a simple reason why Russell Indexes are today the leading benchmarks for U.S.

equity investors—the fi

rm maintains a consistent focus on its statement of purpose:

›

Each index is designed to act as a performance standard for active managers.

›

Russell Indexes serve as proxies for asset allocation purposes.

›

Russell Indexes allow passive investors to purchase liquid and replicable vehicles for

executing their strategies.

Today, Russell’s U.S. equity index family is widely embraced by institutional investors, with

more than $3.9 trillion in assets benchmarked against them.

Russell’s market focus and commitment to providing objective, comprehensive, rules-based

and transparent benchmarks has helped it become the standard for investment professionals

globally.

Background

In the October 1998 issue of MarketPlace News, Nelson Information published a study

measuring the benchmarks that were most frequently used by U.S. equity investment

products. The study listed the top 25 benchmarks used among the 3,333 primarily

institutional products, including index funds, in the Nelson database. The analysis showed

that eight of the top ten fastest-growing benchmarks between 1996 and 1998 were Russell

indexes. The study also noted that usage of the S&P 500 Index as a benchmark had declined

signifi

cantly since 1996. While Nelson did not set out to measure market share in this study, it

is easily derived by combining benchmark usage data for each index provider.

Since this was a one-time study done by Nelson, Russell researchers used it as a starting

point in order to replicate its basic methodology in June 2002 and annually since then. Over

this period, they have found that the trend Nelson originally identifi

ed continues: more and

more institutional investors are using Russell Indexes as their benchmarks. In fact, in 2003,

the number of institutional investment products utilizing a Russell benchmark surpassed

those using an S&P benchmark for the fi

rst time. And in 2005, Russell surpassed S&P in

institutional assets benchmarked. This study is the latest installment in the series, which now

provides data covering a full decade.

Methodology

Like Russell’s index methodology, this market share calculation methodology is transparent.

The Morningstar data provides a comprehensive representation of U.S. institutional equity

products equivalent to the Nelson’s MarketPlace data historically used in the Russell

Institutional Benchmark Survey. Russell researchers found 4,012 U.S. institutional equity

products reporting a benchmark as of December 31, 2009.

Total assets benchmarked to the Russell family of indexes is calculated by combining the

results of the 2009 Institutional Benchmark Survey, variable annuity from the Simfund

database, assets benchmarked to the Russell family of indexes and the survey of passive-

investments managers conducted by Russell Indexes.

One limitation Russell observed in using Nelson’s original study (to calculate market share)

was that Nelson included products with unreported benchmarks in its calculations, causing

the percentage of products reporting use of a given provider’s index to be understated. Using

this method, in effect, gives “unreported benchmark” a market share. For example, in the

2008 Institutional Benchmark Survey, 29% of the U.S. institutional equity products did not

report a benchmark. To overcome this limitation, Russell adopted a common market share

calculation method by basing calculations only on those products for which a benchmark

was reported.

Russell Investments

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U.S. Equity Indexes: Institutional Benchmark Survey

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p 6

All data included in this presentation compiled by Russell Product & Marketing Research as of 12/31/09.

Historical data compiled using Russell client survey,

Nelson’s MarketPlace database and Morningstar Direct database. Historical Nelson’s Marketplace Information calculated as of June 30, beginning in 2002 and each

year thereafter through 2008.

Beginning in 2009, historical data compiled using Morningstar Direct. The primary difference between the historical information

provided by Nelson’s MarketPlace and Morningstar relates to the types of funds included in the computation.

Based on Russell’s research, Russell does not believe

the differences to be signifi cant.

Russell Investments is a Washington, USA, corporation, which operates through subsidiaries worldwide, and is a subsidiary of The Northwestern Mutual Life

Insurance Company.

The trademarks, service marks and copyrights related to the Russell Indexes and other indexes as noted are the property of their respective owners.

Indexes are unmanaged and cannot be invested in directly.

This is not an offer, solicitation or recommendation to purchase any security or services of any organization.

This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from Russell Investments.

Copyright © Russell Investments 2010. All rights reserved.

First used July 2010.

CORP-6195

Disclosures

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