Ever wondered why we use Russell instead of S&P for benchmarks in the RPAG system? Here are four important reasons:
- Russell ranks each company in the investable universe according to its total market capitalization while S&P uses a committee to make these decisions. Market cap is the primary indicator to determine where a company belongs in the Russell Index.
- Using a float adjustment methodology, Russell creates benchmarks that most accurately reflect the market, and Russell’s indices adjust each company’s capitalization ranking to eliminate closely held shares that aren’t likely to be traded.
- By updating index holdings on a regular basis and reconstituting them annually, Russell provides a truer representation of the market.
- Russell indices objectively allow the market to determine the index composition according to clear and published rules. The market determines which companies are included, not the subjective vote of a selection committee.
For more information the importance of a benchmark, contact your plan advisor.