A TOPSY TURVY SMALL-CAP MARKET

OUR favorite exchange-traded fund for small-company stocks is lagging the Russell 2000 index, the leading benchmark for small-company stocks.

- NELLIE S. HUANG

What gives? iShares Core S&P Small-Cap tracks a different index—the S&P SmallCap 600. And there are big differences between the two.

Companies must pass a profitability screen, among other measures, to be included in the S&P SmallCap 600. By contrast, the Russell index only filters for size; it tracks the stocks of the 2,000 smallest companies. Many Russell 2000 companies are more fundamentally challenged and have little to no profits, she adds.