What is the S&P 600 Small Cap Index?
The S&P Small-Cap 600 Index consists of 600 small-cap stocks. A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.
The S&P 600 is not to be confused with the S&P 500, which is composed of large-cap stocks.
How Does the S&P 600 Small Cap Index Work?
Standard & Poor's adds new stocks to the index based not only on size, but also on financial viability, liquidity, adequate float size, and other trading requirements. This ensures that the index is comprised of higher-quality firms than its larger counterpart. Since the index contains only small firms, it represents a mere 3% of the value of the overall market. The S&P Small- Cap 600 Index is market value weighted, meaning that larger firms have a greater influence on the index's performance than smaller firms.
Why Does the S&P 600 Small Cap Index Matter?
Though not as widely followed as many other indices, the S&P Small- Cap 600 Index arguably contains a mixture of more stable and profitable firms. As a result, the S&P 600 has outperformed the Russell 2000 by an average of 3% per year throughout the past decade. In addition, it has outperformed the broader market by an even larger margin. As a result of this outstanding performance, the S&P Small- Cap 600 Index is quickly becoming a favorite for fund managers and smaller investors.