S&P 600

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 scope of small-sized companies that meet specific liquidity and stability requirements. This is determined by specific metrics like public float, market capitalization, and financial practicality, among different factors.

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 yet the former covers a much smaller scope of assets. Hence, the S&P 600 just watches around 3%-4% of total investable equities in the United States. The index records 601 stocks with a mean market capitalization of $1.5 billion.

Market capitalization for inclusion in the S&P 600 small-cap index must fall between $850 million and $3.7 billion to guarantee individual assets don't overlap with the larger S&P 500 or mid-cap S&P 400 indexes.

A breakdown by sector shows a large portion of the listed companies operate in financials, industrials, data technology, medical care, and consumer discretionary. The least number of companies carry on with work in utilities and communication services.

Investing in the S&P 600

It's unrealistic to straightforwardly buy and sell an index, yet several exchange-traded funds (ETF) exist for investors hoping to trade the S&P 600. The most active ones flow through Blackrock's iShares, State Street's SPDR ETFs, and Vanguard.

One explanation investors pick these funds is to capture the gigantic upside likely offered by small-cap stocks. The truth is that a significant number of the more fruitful companies are taken out from the benchmark when they develop to the point of surpassing its limits and meet the criteria for one of the larger indexes. Different motivations to leave the index incorporate a merger or delisting from the stock exchange.

The following ETFs endeavor to follow the performance of the S&P 600 (data as of July 2, 2022):

• The iShares Core S&P Small-Cap ETF (IJR): Launched on May 22, 2000, IJR tries to passively repeat the investment aftereffects of the S&P 600. The ETF flaunts more than $61 billion in assets, a 30-day average volume of generally $4.4 million, and an expense ratio of 0.06%. The ETF's largest holdings by market value incorporate BlackRock Cash Fund, Southwestern Energy, Agree Realty, Omnicell, and Rodgers.
• The SPDR Portfolio S&P 600 Small-Cap ETF (SPSM): Launched in 2013, SPSM offers one more passive method for investing in the S&P 600. The ETF holds more than $3.9 billion in assets and has an expense ratio of 0.05%. Like the IJR, SPSM's largest holdings incorporate any semblance of Southwestern Energy, Agree Realty, and Omnicell.
• The Invesco S&P SmallCap Value With Momentum ETF (XSVM): Launched in 2005, XSVM offers investors a more "active" approach to investing in the S&P 600. Specifically, the index is made out of 122 securities listed on the S&P 600 with the highest "value scores" and "momentum scores." The ETF has a market value of more than $598 million and an expense ratio of 0.39%. Its top holdings are Fresh Del Monte Produce, Conn's, Olympic Steel, Cross Country Healthcare, and Group 1 Automotive.
• The Invesco S&P SmallCap Momentum ETF (XSMO): Also sent off in 2005, XSMO is made out of 117 securities listed on the S&P 600 with the highest momentum scores. The ETF has around $138 million in assets with an expense ratio of 0.39%. Its biggest holdings incorporate SM Energy, ServisFirst Bancshares, ExlService Holdings, Civitas Resources, and Coca-Cola.

Benefits of Investing in the S&P 600

More Room to Grow

The principal motivation to invest in small-caps is self-evident: they have more room to develop than large-caps. Goliaths like Microsoft, Apple, and Wal-Mart produce more than $100 billion in revenue. Normally, developing sales rapidly and essentially is considerably more hard for these blue-chip companies.

Then again, it's extremely normal to find small-cap companies that are doubling or even significantly increasing sales consistently. Why? Since they're working from a lot smaller base of sales.

As such, it's a lot more straightforward for a software small-cap to deliver "multi-bagger" returns over the course of the next 10 years than Microsoft.

Underfollowed by Wall Street

Another big explanation small-caps outperform is that professional analysts don't as closely follow them. This permits investors to "get in" on these companies while they're flying under Wall Street's radar.

Big mutual funds normally need to invest with "limit" rules that prevent them from buying, express, 10% of a company or utilizing 5% of their fund on the stocks of one company. So for mutual funds with billions in assets, small-cap stocks essentially don't make a definite difference.

Diversification

Another big benefit to small-cap stocks is diversification.

Small-cap stocks have unexpected attributes in comparison to mid-cap and large-cap stocks. They act in an unexpected way. In this manner, small-cap stocks can add huge diversification benefits.

Limitations of the S&P 600

Investing in small-sized companies might offer higher expected returns than large-cap stocks, yet it likewise presents several difficulties.

A large number of the companies listed on the S&P 600 keep up with small geographic impressions and will generally endure when the dollar debilitates.

Hypothetically, this boosts investors to trade overseas instead of buying from a small, locally owned business. A hit to earnings growth would likely likewise negatively affect the stock price.

Small-caps have lots of room to develop in light of the fact that they're working with a smaller base of sales. That is on the grounds that these companies are much of the time youthful startups. Also, with youthful startups come doubtful business models, less-experienced management groups, and limited financial resources.

As a result of those factors, what's in store is undeniably more hard to anticipate for small-cap companies than blue-chip companies (which make long term in and year-out).

More Risks Associated With Small-Cap Investing

Volatility Risk

Volatility risk alludes to the degree to which the price of an asset swings all over. The higher the volatility, the riskier the investment.

Since the long-term fate of small firms is difficult to foresee, small-cap stocks will generally swing more fiercely than large-cap stocks. Small-cap stocks are reliably more unpredictable than the overall market. Thus, on the off chance that you need exposure to small caps, ensure you have a sufficiently long time horizon to explore through the choppiness.

Business Risk and Default Risk

Business risk is the exposure of a company to factors that will lead to bring down revenue and earnings. Default risk alludes to the chance that a company will not have the option to pay its debt obligations.

On this front, small-cap companies carry both a higher risk of business and default risk. Why?

While huge blue-chip businesses like Apple and Disney have the financial muscle and brand power to live on for a really long time, small startups commonly have doubtful business models, unpracticed management groups, and limited financial resources. This makes small firms undeniably more helpless to factors like a downturn in the economy, a spike in costs, and extreme competition from a lot larger companies.

For each David and Goliath example of overcoming adversity, there are undeniably more circumstances where the little man gets squashed. As a small-cap investor, you need to acknowledge that reality and have the option to play the numbers game.

Liquidity Risk

Liquidity risk alludes to the degree to which an asset can be bought or sold rapidly without essentially affecting its price.

Since small firms don't draw in as much interest as large companies, small-cap stocks are less liquid than large caps. While it's not difficult to buy and sell a boatload of Microsoft shares whenever without influencing its price, it isn't so simple for small caps.

Frequently, small-cap stocks need more supply when you need to buy them or enough demand when you need to sell them. This outcomes in investors buying small-caps at higher prices and selling them at lower prices than expected.

Lack of Coverage

Small-cap stocks offer enormous hidden opportunities to bring in money due largely to their lack of coverage from Wall Street analysts and institutional investors.

In any case, on the flip side, this lack of coverage makes it challenging to get quality research and data on small-cap companies. The results are twofold:

1. It's harder to notice managerial ineptitude and deceptive behavior at small-cap firms than at widely followed large-cap firms
2. Investors need to commit definitely additional time and work to breaking down small-cap stocks than large-cap stocks to settle on informed choices.

If you have any desire to plunge into the small-cap space, you must have the option to embrace the vulnerability that accompanies a lack of data.

Structure of the S&P 600

The main 10 constituents in the S&P 600 by index weight are (on July 2, 2022):

1. Southwestern Energy
2. Concur Realty
3. Omnicell
4. Rogers
5. AMN Healthcare
6. ExlService Holdings
7. Vonage
8. Example
9. Helmerich and Payne
10. Lantheus

The best 10 holdings of the S&P 600 direct around 5.9% of the weight of the index.

Furthermore, here is the index's sector breakdown (on July 2, 2022, by weight):

• Financials: 18.2%
• Industrials: 16.3%
• Data Technology: 13.5%
• Medical services: 12.5%
• Consumer Discretionary: 11.5%
• Real Estate: 7.6%
• Consumer Staples: 5.6%
• Materials: 5.4%
• Energy: 5.2%
• Utilities: 2.3%
• Communication Services: 2.1%

Features

• Small-cap stocks are not as closely followed by professional analysts, permitting investors to "get in" on these companies while they're flying under Wall Street's radar.
• The fundamental motivation to invest in small caps is that they have more room to develop than large caps.
• The S&P 600 is a benchmark index for small-cap stocks distributed by Standard and Poor's.
• To be listed on the S&P 600, stocks must have a market cap of $850 million to $3.6 billion, preventing overlap with S&P's larger cap indices.
• Several index ETFs and mutual funds permit investors to follow the performance of the S&P 600 small-cap index.

FAQ

What Is the Difference Between the S&P 500 and the S&P 600?

The S&P 500 index is a check of the 500 largest stocks in the U.S. The S&P 600, then again, covers the small-cap scope of U.S. stocks.

What Is the Ticker Symbol for the S&P 600?

The S&P 600 itself doesn't have a ticker symbol. Notwithstanding, ETFs that look to follow the performance of the S&P 600 incorporate the iShares Core S&P Small-Cap ETF (ticker symbol IJR) and the SPDR Portfolio S&P 600 Small-Cap ETF (ticker symbol SPSM).

What S&P Indexes Track Large-Cap and Mid-Cap Companies?

The S&P 500 tracks the 500 largest publicly-traded companies in the U.S. Meanwhile, the S&P 400 is the most widely utilized measure of publicly traded mid-cap stocks in the U.S.