Where did the S & P 500 on my quarterly report go?

Starting in 2011, we are changing two of the equity benchmarks on our quarterly reports.  We are removing the S & P 500 and Russell 2000, and replacing them with the Russell 3000.  We will continue to display the MSCI EAFE (Europe, Australasia, and Far East) index of international companies. 

What’s the difference?  The S & P 500 index consists of the 500 largest U.S. companies by market capitalization.  Market cap is a measure of company size; it is simply the number of shares outstanding times the price per share. Since our client portfolios include small and mid-sized companies for diversification purposes, we believe the Russell 3000 is a better benchmark to use.  It will make it easier for our clients to make an apples-to-apples comparison at a glance.

The Russell 3000 is a broader market index consisting of the 3000 largest companies in the U.S. by market capitalization.  It is more reflective of the total stock market rather than only large companies.  The Russell 3000 is also what we use internally for portfolio management, including setting target weightings for various economic sectors and company sizes.  We believe it is logical for our performance reporting to reflect the composition of the index that we use when managing client assets. 

Client portfolio returns are best compared to a blend of the Russell 3000 for U.S. companies and the EAFE for the portion of the portfolio invested internationally.

We have also changed our fixed income benchmark from the Barclays Aggregate Bond Index to the Barclay Intermediate Government /Credit Index.  We believe this is a better reflection of our client’s fixed income holdings with regard to the maturities and types of securities that we purchase.  For example, the Intermediate Government/Credit Index does not include mortgage-backed securities, which we typically do not invest in.

 

Bill Hansen, CFA

Managing Partner

 

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