DEFINITION of Russell Top 200 Index
The Russell Top 200 Index is a market capitalization weighted index of the largest 200 companies in the Russell 3000. It is commonly used as a benchmark index for US based large-cap stocks with the average member commanding a market cap north of $200 billion. Each year the FTSE Russell reconstitutes the index to exclude companies that no longer meet the minimum criteria or account for growing ones that require inclusion.
The index itself is found under the symbol ^RT200, but often trades through various exchange traded funds. The most popular being the iShares Russell Top 200 Index, released in September 2009.
BREAKING DOWN Russell Top 200 Index
The Russell Top 200 Index is a more concentrated version of the S&P 500, but many of the Russell 200 members are also listed on the larger benchmark. With market conditions favoring larger stocks in recent years, the Russell Top 200 Index now represents about two thirds of total market capitalization of all US listed stocks.
A significant portion of the underlying index is represented by financial services, consumer discretionary, health care, and technology sectors. Technology's weighting in the index has steadily increased over the past decade as many companies look to bolster business operations with cutting-edge technology. Sure enough, the biggest holdings consist of some tech giants like Apple (AAPL), Facebook (FB) and Microsoft (MSFT). Today, the average market capitalization of stocks listed in the index stands at 236 billion thanks to the extended rally in equities.
Advantages of the Russell Top 200 Index
Investing in large-cap stocks offers a number of advantages that are unavailable in smaller companies. For one thing, large companies generate consistent returns with far less volatility than a company just getting started. They control diverse business channels which means specific revenue streams can compensate for the other ones in trying times.
In addition, the companies often have a track record of paying dividends or repurchasing shares, offering investors with a steady stream of income. For the Russell Top 200, investors can expect the same level of consistency and stability found by many of its constituents.
Limitations of the Russell Top 200 Index
The primary disadvantage of investing in a mature company or index that tracks them is the limited upside growth potential compared to an upstart. Small companies introduce new technology and products at a much faster pace which often translate into substantial gains in the stock market. A large company simply can't innovate at the same pace as a small one given lengthy approval process and multiple layers of governance. Therefore, shares are traded for value or income qualities rather than growth potential.