What Is the S&P 600?
The S&P SmallCap 600 is a market index that tracks the performance of US small-cap stocks. It was launched by the Standard & Poor’s Corporation on Oct. 28, 1994, to wide acceptance. It is now the basis of several ETFs as well as a metric for evaluating the performance of small-cap portfolio managers.
Learn more about the S&P 600 and what it might mean for your investing decisions.
Definition and Example of the S&P 600
The S&P SmallCap 600 is an index that measures the performance of about 600 different publicly traded small-capitalization (small-cap) stocks in the US equities market.
Small-cap stocks are most often those with a market capitalization below $2 billion, although the S&P 600 has some companies with market capitalizations over $7 billion. At the beginning of 2022, the index actually had 601 stocks, with market capitalizations ranging from $208 million at the low end to $7.9 billion at the upper level. The mean market capitalization was $1.93 billion and the median market cap was $1.58 billion.
The largest company in the index was Omnicell (OMCL), which makes pharmacy management systems. The largest sector represented was financial services at 18.6% of the index value.
The 5 Largest Companies in the S&P 600
| Constituent | Ticker Symbol | Sector |
|---|---|---|
| Omnicell Inc | WTOL | Health Care |
| Innovative Industrial Properties | IIPR | Real Estate |
| Exponent Inc | EXPO | Industrials |
| AMN Healthcare Services Inc | AMN | Health Care |
| UFP Industries, Inc | UFPI | Industrials |
Like other Standard & Poor’s indexes, the S&P 600 is widely used by professional and retail investors alike. It offers a look at an important, but sometimes overlooked, segment of the financial markets. Small-cap stocks can offer important diversification and performance benefits for investors. The S&P 600 can also serve as a benchmark for seeing how well small-cap portfolios, and their managers, perform.
How the S&P 600 Works
The S&P SmallCap 600 is drawn up by the Index Committee at Standard & Poor’s. The committee starts with the list of companies in the S&P’s Total Market Index and looks for the 600 smallest companies. It then makes adjustments to the list based on how the market sectors of the companies on the list compared to the sector weights of the S&P Total Market Index. These companies are weighted by float-adjusted market capitalization.
The result is an index that tracks the overall performance of small-cap stocks in the US market. This can be used to create other small-cap funds, measure their performance, or select individual equities to invest in.
note
Stocks of different sizes tend to have different performance cycles. While large- and mid-cap stocks trade rapidly and at high volumes, small-cap stocks trade more slowly at smaller volumes.
The index is rebalanced every quarter. The list of companies may be adjusted due to things like mergers, acquisitions, and bankruptcies. Sometimes, companies in the 600 become large enough to move to the S&P MidCap 400 index.
S&P 600 vs. S&P 500
Standard & Poor’s designs several market indexes. The best-known one is the S&P 500 index, which includes the largest companies in the US. The S&P 500 and the S&P 600 have no overlapping stocks. The index methodology ensures that the 500 looks at the largest companies and the 600 looks at the smallest.
For the year ending Dec. 31, 2021, the S&P 600 index had a total price return of 25.27%. The S&P 500 had a total return of 26.89% for the same period.
What It Means for Individual Investors
All types of investments come with risks. Small-cap stocks, compared to large- or mid-cap ones, often have a greater risk of company failure or mismanagement. But that doesn’t mean they are a bad investment.
Academic research has shown that small-cap stocks tend to outperform large-cap stocks over the long run. Adding them to your portfolio may improve your overall risk-adjusted performance.
If you are an interested investor in small-cap stocks, you can use the S&P 600 by:
- Investing in mutual funds or exchange-traded funds (ETFs) that use the S&P 600 as their benchmark
- Screening the list of companies in the index to find shares to buy
- Using the performance of the index to evaluate the performance of other small-cap funds and managers you might be considering
The S&P 600 is the basis for 18 different ETFs listed in the United States and in other markets. If you are interested in adding the S&P 600 to your portfolio, you can buy shares in any of these funds.
If you are interested in options strategies, you can use any of the options on the index created by the CME. The options offer more flexibility in creating investment strategies—and a completely different risk profile than an ETF.
Key Takeaways
- The S&P SmallCap 600 is used to track the performance of US-based stocks with a market capitalization below $2 billion, known as small-cap stocks.
- It is the basis for ETFs, mutual funds, and options for investors who want to increase their exposure to the small-cap market.
- Investors can use the S&P 600 to make investing decisions, including evaluating the performance of small-cap fund managers.
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