What Is the Russell Midcap Index?
The Russell Midcap Index is a market capitalization-weighted index comprised of 800 publicly traded U.S. companies with market caps of between $2 and $10 billion. The 800 companies in the Russell Midcap Index are the 800 smallest of the 1,000 companies that comprise Russell 1000 Index.
The Russell 1000 Index is a compilation of the largest 1,000 publicly traded U.S. companies. The average Russell Midcap Index member has a market cap of $8 billion to $10 billion, with a median value of $4 billion to $5 billion. The index is reconstituted annually so that stocks that have outgrown the index can be removed and new entries can be added.
The Basics of the Russell Midcap Index
The Russell Midcap Index is a complete subset of both the Russell 1000 and the Russell 3000. The 800 constituents of the Russell Midcap Index make up most of Russell's large-cap index, the Russell 1000, which is a compilation of the largest 1,000 publicly traded companies. It is worth noting that only 200 of the largest companies fall into the large-cap or mega gap range. Midcap companies are definitely the majority.
There are also 2,000 small-cap companies traded on exchanges as well, which make up an even larger portion of available investments than mid and large-cap combined. This is important to note because even though you hear most about the GEs and the Boeings, companies of that size do not represent the majority of shares traded on exchanges. Midcap fund managers have few good indexes against which to benchmark their returns, making the Russell Midcap Index a valuable one for institutional portfolio managers.
- This index is a market-capitalization-weighted index of the 800 smallest U.S. publicly traded companies among the Russell 1000.
- The index is the most widely followed midcap index so there are several funds designed to track the performance of this index.
- The midcap index's makeup is recalculated each year according to its inclusion criteria.
"Midcap" is the term given to companies with a market capitalization (value) between $2 billion and $10 billion. As the name implies, a mid-cap company falls in the middle of the pack between large-cap (or big-cap) and small-cap companies. Classifications such as large-cap, midcap, and small-cap are only approximations and may change over time.
Most financial advisors suggest that the key to minimizing risk is a well-diversified portfolio; investors should have a mix of small-cap, midcap, and large-cap stocks. However, some investors see mid-cap stocks as a way to diversify risk as well. Small-cap stocks offer the most growth potential, but that growth comes with the most risk. Large-cap stocks offer the most stability, but they offer lower growth prospects. Midcap stocks represent a hybrid of the two, providing a balance of growth and stability.