Russell Indexes 1999 Performances Reflect Narrow Market Advances and Quirks for Year

“Lost in the year-end new millennium celebrations, small-cap stocks on the Frank Russell Company’s Russell 2000 Index quietly outdid large-cap stocks in annual performance for 1999.For the first time in six years, the small-cap Russell 2000 Index outperformed the two major large-cap indexes – Standard & Poor’s 500 and the Russell 1000 Index. The small-cap Russell 2000 Index returned 21.3 percent for the year, while the Russell 1000 rose 20.9 percent and the S&P 500 increased 21.0 percent.“While everyone seemed to focus on technology’s amazing performance in 1999, small-caps began to crank in the fourth quarter and particularly in the last few weeks of December,” said David Hintz, a senior research analyst for the Tacoma-based Frank Russell Company. “The Russell 2000 came to life because investor enthusiasm for technology stocks moved down into the small-cap arena.”During fourth quarter 1999, the technology sector’s weighting within the Russell 2000 surpassed the weighting of all other sectors for the first time in the 21-year history of the index, according to company officials. Technology stocks now comprise 23.6 percent of the index, surpassing financial services, at 17.5 percent, as well as consumer discretionary and services, at 16.8 percent.The technology sector had ranked third in June at 14.8 percent after the index’s annual rebalancing process.The rally among technology-related growth stocks led all segments of the U.S. equity market to new highs for 1999. The broad-market Russell 3000 Index, large-cap Russell 1000 and small-cap Russell 2000 each set all-time records on the final day of trading for the year.Not all investors found themselves with a reason to celebrate the market’s performance, however.“This rally was largely a function of investor’s optimism in technology and communications-related issues,” Hintz said. “The sobering fact is, this has been a very narrow market advance and many broadly diversified mutual funds and investment portfolios were hard-pressed to keep pace with the narrow band of sizzling performance.”While the Russell 3000 returned 20.9 percent in 1999, a close look at the index’s 12 sectors is revealing.The technology sector surged an incredible 78.2 percent in 1999 and 38.2 percent during the fourth quarter alone. But three major sectors in the index turned in a negative performance for the year: health care, down 7.1 percent; consumer staples, down 16.2 percent; and autos and transportation, down 3.4 percent.“This year’s narrow slice of market leadership shows the difficulty and added risk of trying to pick the best performing market sector or segment,” said Dennis Trittin, a portfolio manager for Russell. “It’s easy to get hypnotized by some of these sizzling numbers, but this year’s market demonstrates that, to achieve consistent returns, it is necessary to diversify across multiple managers and sectors.”The narrowness of the market advance will have an impact on mutual fund managers, according to Russell executives.“We expect to see a very wide spread in manager performance for both the quarter and the year,” Hintz said. “Those portfolio managers who bet on price momentum and sales momentum did the best, while those who made decisions based on valuations did worse.”Larger growth stocks performed well in 1999 as in recent years. The Russell 1000 Growth Index returned 33.2 percent for the year and over 25 percent in the fourth quarter.The performance of mid-cap growth stocks improved dramatically in 1999, outperforming the larger growth issues. The Russell Midcap Growth Index rose 51.3 percent for the year and 39.5 percent for the quarter.“Active fund managers who were willing to stomach the high valuations in certain Internet and technology-related stocks benefited a lot,” Hintz said. “Those who participated in the rapid, early price appreciations of IPOs, for example, found opportunities to beat their indexes.”Not all growth stocks performed well. Some growth sectors that normally tend to do better when the economy is not booming, such as consumer staples and health care, fared poorly in 1999 with negative returns in the large-cap growth index, down 12.2 percent and 7.6 percent respectively.“Traditional, large growth stocks such as Coca-Cola Co. and Pfizer Inc. performed relatively poorly in 1999,” Hintz said. “Optimistic investors were looking for newer growth companies in rapidly changing industries.”Hintz added that strong growth stocks were not confined only to the technology sector. Some popular growth stocks such as General Electric Co., Wal-Mart Stores Inc. and Home Depot Inc. were strong contributors to the strength of the growth index, according to Hintz.The disparity in returns between growth and value styles in 1999 was more significant than between small-cap and large-cap styles.While Russell’s large-cap and small-cap indexes tended to stay within a percentage point of each other, the broad-market spread between growth and value stocks was 27.1 percent. The Russell 3000 Growth Index returned 33.8 percent for the year while the Russell 3000 Value Index returned only 6.7 percent.Value stocks were especially weak in the mid-cap and small-cap tiers. The Russell Midcap Value Index fell slightly, down 0.1 percent in 1999 and the Russell 2000 Value Index was down over 1.5 percent for the year.Daily total returns and values are available for all Russell indexes on the company’s web site at”