What is the CRSP US Small Cap Index?
Small caps are the movers and shakers of the market: those with market capitalization of between $300 million and $2 billion. For many, they’re too risky to approach as individual investments, which is why there are so many managed funds and indices that track baskets of them. Among the most reliable is the CRSP US Small Cap Index.
The Center for Research in Security Prices (CRSP) created this index alongside a family of others designed to provide investors with transparent, accurate, reliable price databases to measure security performance against. Today, more than 500 institutions in 35 countries rely on CRSP data to benchmark the performance of their investments.
Here’s a closer look at the smallest—yet one of the most important—CRSP indices: the CRSP US Small Cap Index.
The Smallest Companies on the Market
The CRSP US Small Cap Index focuses on the smallest public companies, tracking price movements in a cap-weighted capacity. Specifically, it aggregates companies in the bottom 2% to 15% of the market, which includes some 1,400 stocks (December 2021). The median market cap is $6 billion, which skews higher than other major indices such as the Russell 2000, which has a median market cap of roughly half ($3.1 billion).
The CRSP US Small Cap Index focuses exclusively on the lowest echelon of the stock market. This index is bookended by the CRSP U.S. Small-Mid Cap Index, which includes companies up to $10 billion market cap, and the CRSP U.S. Micro Cap Index, which exclusively targets the bottom 2% of investable market capitalization.
What is the Center for Research in Security Prices?
If you’re an investor in managed funds, you’re probably wondering where fund managers get the data to benchmark the success (or shortcomings) of their portfolios. The Center for Research in Security Prices (CRSP) is one such data authority.
The institution monitors over 32,000 securities across all major U.S. exchanges to provide contextual pricing information for everything from bonds and REITs to individual stocks. It’s such a widely reputed source of price accuracy and transparency that even the Federal Reserve uses its data.
A Family of Indices
In 2012, CRSP began providing its pricing data in the form of investable indices. Today, there are 33 CRSP investable indexes weighted by different segments of market capitalization, investment styles (growth vs. value), sector, location, and more.
History of the CRSP US Small Cap Index
The CRSP US Small Cap Index was one of the first investable indices available from CRSP. It became available through the NASDAQ Global Index Data ServiceSM feed at the start of 2013. Today, investors can approach the index from two different standpoints:
- CRSP U.S. Small Cap Index Total Return (TR) (CRSPSCT)
- CRSP U.S. Small Cap Index Price Return (PR) (CRSPSC1)
The CRSP rebalances its US Small Cap Index every quarter to ensure the clearest possible picture of a small cap aggregated index. This is in contrast to other major small cap indices like the Russell 2000, which reconstitute themselves annually.
Historic Performance of the CRSP US Small Cap Index
The big draw for investors when it comes to small caps is the potential for strong price movement. Up and coming companies can deliver big returns, while the broad nature of an index dampens the hit of companies on the downtrend. So where does the CRSP US Small Cap Index stack up?
Since its inception, the CRSP US Small Cap Index has been one of the best-performing small cap indices for investors. It has a 10-year annualized return of 12.3% and through 2021, it’s up 15%. This is good enough to beat out most other small cap indices.
How to Invest in the CRSP US Small Cap Index
There are several ways to invest in the CRSP US Small Cap Index. The best way is through a Vanguard Fund. Currently, Vanguard is the only mutual fund provider that tracks CRSP indices. Those looking to capitalize on small caps would invest in the Vanguard U.S. Small Cap (VSMAX) fund. Like all Vanguard funds, VSMAX has a low expense ratio (0.05%).
Vanguard also offers an ETF that tracks the CRSP US Small Cap Index: the Vanguard Small-Cap ETF (VB). This ETF also comes with a 0.05% expense ratio, although its share price is roughly double that of the VSMAX fund.
Why Invest in the CRSP US Small Cap Index?
Investing in the CRSP US Small Cap Index offers access to one of the most trusted benchmarks of small cap stock performance. Like any index, this one aggregates small caps to modulate their volatility and to give investors a pure play into the small cap market. However, unlike other indexes, CRSP takes a more active role in managing and balancing this index. It remains one of the best pure small cap-weighted indices—which is part of the reason Vanguard funds are touted as premier investment products.
Capitalize on the Smallest Companies
For those interested in small cap stocks and their potential, but wary of the risk that accompanies them, the CRSP US Small Cap Index is a no-brainer investment. In terms of indices, it’s one of the most regarded and well-reputed, and it’s committed to focusing on this niche of movers and shakers.
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For many, the path to investing in CRSP indices is a familiar one: the Vanguard funds your 401(k) offers. It doesn’t get much easier to access the potential of the small cap market.