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Financial Literacy

What is the S&P SmallCap 600 Index?

Talk about the stock market often revolves around the S&P 500 Index. What most people don’t realize is that there’s actually an entire family of S&P indices, including the very popular S&P SmallCap 600 Index. In fact, this index has particular notoriety as one of the premier benchmarks for small cap stock performance. It’s widely tracked and reported on as a measure of performance for the market’s smallest public offerings. 

The S&P SmallCap 600 Index is a cap-weighted index that widens the parameters of traditional small cap consideration. While most investors generally recognize a small market cap as a figure between $300 million and $2 billion, the S&P 600 accounts for securities with a market cap that falls between $700 million to $3.2 billion. Because of this, it tends to flirt with more stocks on the uptrend, toward mid-cap territory. 

Here’s a closer look at the S&P SmallCap 600 Index: what it is, its performance history and why so many small cap investors flock to it. 

Learn about the S&P SmallCap 600 Index

What is Standard and Poor’s (S&P)?

Standard & Poor’s is one of the oldest credit rating services in the United States. It was founded in 1860 when Standard Statistics and Poor’s Publishing merged. The organization publishes financial research, provides credit ratings and delivers price insights in the form of packaged investment products. 

Known today as S&P Global Ratings, the organization is part of the “Big Three” credit-rating agencies. It’s alongside Moody’s Investors Service and Fitch Ratings. In short, S&P is responsible for providing the bottom-line information that helps investors determine investment risk and opportunity across debt and equity securities. 

A Family of Indices

Most investors recognize “S&P” as the prefix to some of the most well-known stock index benchmarks, including the S&P 500 Index and the S&P SmallCap 600 Index. As of 2021, S&P Global Ratings offers 60 mutual funds and four ETFs, spanning a diverse range of cap size, sector focus, investment style and other variables. 

History and Performance of the S&P SmallCap 600 Index

While Standard & Poor’s has been around for decades as a source for securities information and aggregate price tracking, the S&P SmallCap 600 Index manifested on October 28, 1994. Since then, it’s quickly become one of the de-facto resources for measuring the performance of small cap stocks. 

The median market cap of the S&P 600 was $1.26 billion in 2021. This is roughly half the median market cap of a similar index like the Russell 2000 ($3.1 billion), making it a more volatile index. Also in contrast to the popular Russell 2000 index, the S&P 600 balances quarterly instead of annually. 

How has the S&P SmallCap 600 Index fared in comparison to other major small cap indices over the years? In a word: spectacularly. Over the past decade (2011-2021), the index has generated an annualized return of 15.69%. In 2021 alone, it’s up over 20%. 

S&P 600 vs. the S&P 500: What’s the Difference?

Though they have their similarities in terms of construction, the S&P 500 and the S&P 600 are very different in terms of the stocks they track. Specifically, they represent both ends of the stock market: large- and mega-caps vs. small cap companies. Here’s a quick look at their differences:

  • The S&P 500 tracks the performance of the largest 500 companies on the market, amounting to more than $5.4 trillion. As a cap-weighted index, it tends to see bloat from the largest companies. In fact, the 9 largest companies account for nearly a third of the index’s weight. 
  • The S&P 600 tracks the performance of 600 of the smallest companies on the market, which account for roughly 3% of the total stock market in terms of market capitalization weight. It tends to see a more frequent changing of the guard as companies grow out of or fall into the threshold for inclusion. 

While these two indices represent the two ends of the stock market spectrum, it’s important to note that there are others in-between them, including the S&P 400 MidCap index and the S&P 1000, which includes both the S&P 600 and the S&P 400. 

How to Invest in the S&P SmallCap 600 Index

As one of the most prevalent benchmarks for small cap stocks, there are several large funds that track its performance. Investors will have no trouble finding an ETF or mutual fund designed to replicate the performance of the S&P 600. Some of the most popular (and their expense ratios) include:

  • iShares Core S&P Small-Cap ETF (NYSE: IJR), 0.06%
  • Vanguard S&P Small-Cap 600 ETF (NYSE: VIOO), 0.10%
  • SPDR S&P 600 Small Cap ETF (NYSE: SLY), 0.05%

Because they passively track the S&P 600 index, these funds have almost no expense ratio associated with them. This allows investors to tap into the momentum of small cap stocks without sacrificing gains to management fees. And, of course, the fund itself balances the risk of small caps across 600 companies.

Why Invest in the S&P SmallCap 600 Index?

For those who want exposure to small caps, the S&P 600 is a stalwart investment. It offers a narrower, more specific focus than the Russell 2000 and comparable indices, backed by one of the world’s oldest authorities on security pricing and information. Moreover, because it’s so widely pegged by other funds, investors have numerous opportunities to choose their investment vehicle. 

One of the Strongest Small Cap Indices

The performance of the S&P SmallCap 600 Index speaks for itself as a reason to invest. It’s an appealing index for those interested in small caps. With popular Vanguard and iShares funds tracking it, investors have no trouble dabbling in the opportunities provided by the smallest, and often strongest, companies in the public markets. 

To learn more about small cap stocks and other investment opportunities, sign up for the Liberty Through Wealth e-letter below. Learn how to build wealth in your life by making smart investment decisions!


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