Quick thread on the importance of knowing index methodology (yes, you might even need to understand academic literature when selecting indices!):

1/ I am going to look at a similar index (large cap growth) from two major index providers S&P and Russell and their differences and what that might imply.

2/ Here is the methodology for what Russell uses to determine what goes into their growth indices (2 year projected growth and historical 5 year sales).

3/ One thing to note is this index ISN'T "not value". This means that it doesn't own the most expensive half of stocks, it tries to own companies that are growing.

This means that, in and of itself, there shouldn't be a negative expected return from this by being short value.

4/ Here is the index methodology for S&P growth:

5/ One thing to note here is that S&P explicitly uses MOMENTUM in constructing their growth indices!

Also, S&P also isn't "not value".

6/ Does this difference in index methodology matter in returns? Let's take a look:

(I use 85% S&P 500 index and 15% S&P 400 index for S&P so that it nullifies the market cap difference between the Russell 1000 index).

7/ Here is the historical performance of the two indices compared to each other:

8/ So what is going on here? The performance difference is arising from the index construction methodology, ie, S&P is effectively long price momentum (known return factor) vs. Russell that uses only fundamental growth data (S&P uses it too so there is some differences there).

Fin/ This means that one can effectively implement academic factors even using index data. For example, if you want to include momentum in your portfolio, you might want to choose S&P indices vs. Russell. These choices can lead to different index performance!