What Is the S&P 600?
The S&P 600 is an index of small-cap stocks managed by Standard and Poor's. It tracks a broad range of small-sized companies that meet specific liquidity and stability requirements. This is determined by specific metrics such as public float, market capitalization, and financial viability among a few other factors.
- The S&P 600 is a benchmark index for small-cap stocks published by Standard and Poors.
- Stocks must have a market cap of $700 million to $3.2 billion, which also prevents overlap with S&P's larger cap indices.
- Several index ETFs and mutual funds allow investors to track the performance of the S&P 600 small-cap index.
Understanding the S&P 600
The S&P 600 is comparable to the Russell 2000 Index in that both measure the performance of small-cap stocks but the former covers a much narrower range of assets. For this reason, the S&P 600 only watches about 3-4% of total investable equities in the United States. As of February 2021, there were 601 stocks tracked in the index with an average market capitalization of about $1.35 billion.
Market capitalization for inclusion in the S&P 600 small-cap index must fall between $700 million and $3.2 billion to ensure individual assets do not overlap with the larger S&P 500 or mid-cap S&P 400 indexes.
The top 10% of holdings dictate about 7.1% of all movement in the index. Some of the companies with the largest weighting in the index include GameStop Corp, NeoGenomics, and Proto Labs. A breakdown by sector shows a large portion of the listed companies operate in industrials, consumer discretionary, financials, and information technology. The fewest number of companies do business in utilities and communication services.
Investing in the S&P 600
It's not possible to directly buy and sell an index, but several exchange-traded funds (ETF) exist for investors looking to trade the S&P 600. The most active ones flow through Blackrock's iShares, State Street's SPDR, and Vanguard.
One reason investors choose these funds is to capture the massive upside potential offered by small-cap stocks. The truth is that many of the more successful companies leave the benchmark when a spot opens up in one of the larger indexes. Other reasons to leave the index include a merger or de-listing from the stock exchange.
Limitations of the S&P 600
Investing in small-sized companies may offer higher potential returns than large-cap stocks, but it also presents several challenges. Many of the companies listed on the S&P 600 maintain small geographic footprints and tend to suffer when the dollar weakens.
In theory, this provides an incentive to trade overseas rather than to buy from a small, domestically owned business. A hit to earnings growth would likely also take a toll on the stock price. Moreover, many small companies have lower levels of liquidity and higher volatility than a large-cap, meaning they tend to fluctuate more erratically.