In public U.S. equity, there are four widely adopted index families that serve to confer a benchmark for active managers or can be used as building blocks for passively implemented portfolios. These families—S&P Dow Jones, FTSE Russell, the Center for Research in Securities Pricing (CRSP), and MSCI—generally construct their indices in a way that makes the overall broad U.S. equity picture look similar.

But they also have certain key differences that, if the picture were cut into a puzzle, the pieces would fit differently. These differences may seem small but have important structural implications that could lead to unintended biases for institutional investors. In an environment in which index concentration remains a persistent theme, it is important to be aware of these differences to avoid surprises that can arise from mixing the pieces of different index families.

A brief description of each index family is in order, beginning with the most widely recognized index—the S&P 500. As the name would suggest, there are approximately 500 stocks represented by the index. Given that there are over 3,000 stocks traded on U.S. exchanges, there are some noteworthy cuts to get to an index of 500. While S&P does offer a Total Market Index, the more popular S&P 500 represents a subset of stocks that are mostly large/mega cap and have demonstrated four consecutive quarters of GAAP profits. An Index Committee governs additions and deletions from the S&P indices based on certain criteria that are not purely rules-based and mechanical. One could reasonably argue that this earnings requirement, or financial viability criteria as S&P calls it, is a quasi-active screen.

There is also an S&P 1500 Index that expands representation beyond large cap and includes middle and small cap companies. Building up to the S&P 1500, large/mega cap stocks are represented by the S&P 500, mid-cap is represented by the S&P 400, and small cap by the S&P 600. This financial viability criteria is unique to the S&P 1500, as the S&P Total Market Index and other index families do not have this earnings requirement.

The Russell indices tend to be the most widely used benchmarks for active managers. In addition, there is wide product availability for those desiring to replicate the Russell indices in a passive portfolio. The Russell 3000 can be thought of as the broad market. Typically, the building blocks of the Russell 3000 are the Russell 1000 (large and mid-cap companies) and the Russell 2000 (small cap), though there are more permutations along the capitalization spectrum. For example, for those wishing to distinguish between large and mid, Russell also offers a Top 200 index as a proxy for large/mega cap stocks, with the Russell Mid Cap representing the remaining 800 stocks in the Russell 1000. The important point, as it relates to building U.S. equity structures, is that the Russell 1000 includes a 20% weight by market value to mid cap securities. The peripheral style versions—the Russell 1000 Value and the Russell 1000 Growth—are most often used to benchmark active large cap managers.

The University of Chicago’s Center for Research in Security Prices (CRSP) index offerings were not widely known to retail and institutional investors until 2012, when several Vanguard U.S. index funds switched from tracking various MSCI indices to tracking CRSP indices. Vanguard’s pivot notwithstanding, MSCI remains widely adopted as a benchmark for non-U.S. and global investment managers. However, the MSCI U.S. indices appear to have limited adoption by U.S.-based investors as a standalone U.S. index. Typically if an investor has adopted a global framework to public equities, the default benchmark is the MSCI ACWI (All Country World Index). Note that MSCI standard indices are mostly made up of large cap securities, while the Investable Market Index (IMI) includes large, small, and mid-cap securities.

At the total market index level, the Russell 3000 Index, the CRSP US Total Market Index, and MSCI USA Investable Market Index (IMI) are very similar. But in the segmentation of capitalization, there are meaningful differences in how MSCI and CRSP categorize large, mid, and small cap companies relative to Russell. The CRSP Large Cap index is defined as 85% of the total market index and, even though the name implies large, includes what others would define as mid cap. The weighted median market capitalization of the CRSP Small/Micro Index of $7.7 billion is more than double the weighted median market capitalization of the Russell 2000. Including any CRSP mid-cap index would lead to duplication in mid-cap stocks. For Russell, large is defined as the top 200 companies, mid-cap is defined as companies #201-1,000, and small cap is defined as companies #1,001-3,000. These distinctions have led to observable differences in both the performance and characteristics for the various small and mid-cap options that track the respective benchmarks.