What is the S&P 600 Index?

The S&P 600 Index is a market index that tracks the performance of small-cap stocks in the United States. It was launched by Standard & Poor’s on October 28, 1994, and has gained widespread acceptance. It is now the basis for several exchange-traded funds (ETFs) and also serves as a benchmark for evaluating the performance of small-cap stock portfolio managers.

Definition and Example of the S&P 600 Index

The S&P 600 Index measures the performance of approximately 600 different small-cap stocks that are publicly traded in the U.S. equity market. Typically, small-cap stocks are those with a market capitalization of less than $2 billion, although the S&P 600 Index includes some companies that exceed a market capitalization of $7 billion. At the beginning of 2022, the index actually had 601 stocks, with market capitalizations ranging from $208 million at the low end to $7.9 billion at the high end. The average market capitalization was $1.93 billion and the median market cap was $1.58 billion.

How the S&P 600 Index Works

The S&P 600 Index is maintained by the Index Committee at Standard & Poor’s. The committee begins with a list of companies in the S&P total market index and looks for the smallest 600 companies. It then makes adjustments to the list based on how the sectors of the companies in the list compare to the sector weights in the S&P total market index. These companies are then weighted according to their market capitalization adjusted for trading.

The result is an index that tracks the overall performance of small-cap stocks in the U.S. market. This index can be used to create other small-cap stock funds, measure their performance, or select individual stocks for investment.

S&P 600 vs. S&P 500

Standard & Poor’s designs several market indices. The most famous is the S&P 500, which includes the largest companies in the United States. There are no common stocks between the S&P 500 and the S&P 600. The methodology of the index ensures that the 500 index looks at the largest companies while the 600 index focuses on the smaller ones.

For the year ending December 31, 2021, the S&P 600 Index registered a total return of 25.27%. The S&P 500 Index registered a total return of 26.89% for the same period.

What It Means for Individual Investors

All types of investments come with risks. Small-cap stocks carry greater risks compared to large-cap or mid-cap stocks, often due to the potential for company failure or mismanagement. However, this does not mean they are a bad investment.

Academic research has shown that small-cap stocks tend to outperform large-cap stocks over the long term. Adding them to your portfolio can improve the overall risk-adjusted performance.

If you are an investor interested in small-cap stocks, you can use the S&P 600 by:

• Investing in mutual funds or exchange-traded funds (ETFs) that use the S&P 600 as their benchmark.
• Reviewing the list of companies in the index to find stocks to purchase.
• Using the performance of the index to evaluate the performance of other small-cap stock funds and their managers you might be considering.

The S&P 600 serves as the basis for 18 different index funds listed in the U.S. and in other markets. If you are interested in adding the S&P 600 to your portfolio, you can buy shares in any of these funds.

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Source: https://www.thebalancemoney.com/s-and-p-600-5216738