Returns-Based Style Analysis (2)
Frank Harvey is analyzing a U.S. equity mutual fund that states the investment objective of investing for growth and income, with an orientation to mid-cap stocks within the universe of U.S.-domiciled companies. Harvey may select from the following indices for use in a returns-based style analysis:
■ the S&P/Citigroup 500 Growth and Value indices, which have a large-cap orientation;
■ the Russell 2000 Growth and Value indices, which have a small-cap orientation; ■ the Russell 1000 Growth and Value indices, which include large-cap and
■ the Russell Top 200 Growth and Value indices, which together represent the 200 largest market-cap securities in the Russell 1000 Index; and
■ the Russell Midcap Growth and Value indices, which together represent the 800 smallest market-cap issues in the Russell 1000 Index (the Russell Top 200 Index and the Russell Midcap Index together constitute the Russell 1000 Index).
Harvey selects the S&P/Citigroup 500 Growth and Value indices and the Russell 2000 Growth and Value indices for the style analysis.
2. Recommend a more appropriate selection of indices.
Solution to 2:
The following selection of indices would be best:
■ Russell Top 200 Growth ■ Russell Top 200 Value ■ Russell Midcap Growth ■ Russell Midcap Value
■ Russell 2000 Growth ■ Russell 2000 Value"
Harvey is only interested in mid-cap growth and value. My answer is Russell Midcap Growth & Value. What’s the point of including Top 200 or Russell 2000?