Investment Fundamentals: Understanding Stock Mutual Fund Benchmarks

By Mitchell J. Smilowitz, CPA

Investors use benchmarks – S&P 500, the various Russell indices and the MSCI World Index – all of the time. We use them to track the overall financial markets as well as to benchmark the investment performance of individual mutual funds.

This article addresses the market indices the JRB uses to benchmark our stock mutual funds.

Standard & Poor’s 500

The Standard & Poor’s (S&P) 500 tracks the stocks of 500 large-cap U.S. companies and is a popular benchmark for large cap mutual funds. Together, the companies in the S&P 500 account for about 80% of all U.S. corporations by market capitalization. Companies in the S&P 500 are listed on the New York Stock Exchange or Nasdaq.

The S&P 500 is often considered a better reflection of how stocks are performing than the Dow Jones Industrial Average (see below) because it includes more companies and represents a larger portion of the U.S. economy in terms of market capitalization.

Fidelity 500 Index, Fidelity Contrafund, Parnassus Core Equity and T. Rowe Price U.S.Equity Research are benchmarked to the S&P 500.

Russell 1000 Value

The JRB uses several Russell indices. These are prepared by the London Stock Exchange Group. The Russell 1000 Value index measures the performance of U.S. large-cap value companies. The index includes approximately 700 publicly traded companies. It is updated annually in June.

JPMorgan Equity Income is benchmarked to the Russell 1000 Value.  

Russell Midcap Value

The Russell Midcap Value index reflects the results of the mid-cap value segment of publicly traded U.S. companies. It is comprised of approximately 800 companies with market capitalization between $2 - $10 billion.

T. Rowe Price Mid-Cap Value is benchmarked to the Russell Midcap Value.

Russell 2000

The Russell 2000 reflects the performance of approximately 2,000 small-cap, publicly traded U.S. companies. The median value of a company in the Russell 2000 was $943 million as of September 30, 2018.

Fidelity Low-Priced Stock and Loomis Sayles Small-Cap Value are benchmarked to the Russell 2000.

Russell 2500 Growth

The Russell 2500 Growth index is a measure of small- and mid-cap growth companies publicly traded in the U.S. This includes companies with up to about $10 billion in market capitalization.

Goldman Sachs Small/Mid Cap Growth R6 is benchmarked to the Russell 2500 Growth.

Dow Jones U.S. Completion Total Stock Market (TSM)

The Dow Jones U.S. Completion TSM index is a broad measure of publicly traded U.S. companies not included in the S&P 500.

Fidelity Extended Market Index is benchmarked to the Dow Jones U.S. Completion TSM.

MSCI All Country World excluding USA

The Morgan Stanley Capital International (MSCI) All Country World excluding USA Index captures large- and mid-cap companies across developed markets (excluding the United States). It also tracks companies in 27 emerging markets. The Index tracks approximately 85% of the global large- and mid-cap publicly traded companies outside the U.S. It is designed to provide a broad measure of stock performance worldwide, with the exception of U.S.-based companies.

American Funds EuroPacific Growth Fund R6 is benchmarked to the MSCI All Country World excluding USA.

FTSE Global All Cap excluding U.S.

The FTSE (Financial Times Stock Exchange) Global All Cap excluding U.S. represents the performance of the full range of non-U.S. companies. The index includes approximately 5,350 large-, mid- and small-cap companies in 46 developed and emerging markets worldwide, excluding the U.S.

Vanguard Total International Stock Index is benchmarked to the FTSE Global All Cap excluding U.S.

Other Indices

In addition to the market benchmarks described above, there are two additional indices it is useful to understand: the Dow Jones Industrial Average and the Nasdaq Composite Index. While neither is sufficiently specific to serve as a benchmark for JRB’s investment options, both are often used as broad reflections of U.S. financial markets.

Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA), or simply the Dow, is based on the stock prices of 30 large U.S. companies. It includes companies from all sectors of the economy except transportation and utilities.

Nasdaq Composite Index

The Nasdaq, formerly the National Association of Securities Dealers Automated Quotations, Composite Index includes more than 3,000 companies many of which are in the technology industry. All of the companies on the index are traded on the Nasdaq stock exchange.

Summary

Understanding stock market indices is central to evaluating your asset allocation and the performance of your portfolio. If you have questions about the asset allocation or performance of your portfolio, please contact us via email or call 888-JRB-FREE (572-3733).

January 2019