Appeared on October 20, 2008
Houge and his co-author, Jie Cai, a business professor at Drexel University and University of Iowa Ph.D. alumnus, studied the long-run performance of the Russell 2000 – and the funds that track it – from 1979 to 2004. He said the Russell 2000 index itself is a valid and accurate reflection of small-cap stock performance at any given time. But its annual rebalancing means that index funds made up of the stocks on the index may not perform as well as they could. Because of the annual rebalancing, the stocks of growing companies are removed from the index just as they are starting to post significant returns.