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Falling Correlation in Global Equity Markets Could Favour Active Stock Pickers in 2014, According to Russell Investments

SEATTLE, WA -- (Marketwired) -- 01/24/14 -- Falling stock level correlations and increasing valuation dispersion have the potential to provide an opportunity for active stock pickers in 2014, especially in global small cap where securities tend to have large stock price inefficiencies and lower sell side coverage in these areas.

According to Russell Indexes, the performance correlation between stocks within equity markets around the globe steadily decreased in 2012 and 2013.

And led by developed European markets, small cap stocks across a range of global regions have outperformed their large cap counterparts in 2014 as of January 17, continuing a trend set in 2013.

  • In Europe, the Russell Developed Europe Small Cap Index returned 4.1% year-to-date, double that of the Russell Developed Europe Large Cap Index for the same time period.

  • In the U.S., the small-cap Russell 2000®Index (2.0%) outpaced the large-cap Russell 1000®Index (1.3%) year-to-date, after outperforming by more than 5% in 2013.

  • Globally, the Russell Global Small Cap Index returned 2.5% year-to-date, double that of the Russell Global Large Cap Index for the same time period.

"We continue to see opportunity in small caps in 2014," said Jon Eggins, senior portfolio manager with Russell Investments. "While valuations have become higher with such strong performance in 2013, we now see falling stock level correlations as well as increasing valuation dispersion between stocks. These factors appear to underscore the opportunity for active stock pickers in global small caps this year as macroeconomic influences recede and individual stock fundamentals come to the fore."

For more information on global small cap equities and the Russell Indexes, go to the Russell Investments website.


Russell Index Returns

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Index                                         2014 YTD a/o Jan 17     2013
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Russell Developed Europe Large Cap Index              2.1%           19.9%
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Russell Developed Europe Small Cap Index              4.2%           31.2%
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Russell 1000 Index                                    1.3%           27.4%
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Russell 2000 Index                                    2.0%           32.8%
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Russell Global Large Cap Index                        1.2%           18.9%
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Russell Global Small Cap Index                        2.5%           19.9%
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Russell Emerging Markets Large Cap Index             -1.5%           -4.9%
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Russell Emerging Markets Small Cap Index              1.4%            1.1%
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Source: Russell Investments. Returns are total returns (reflect reinvestment
of dividends and distributions) and are denominated in euros. Index
performance correlations are based on monthly returns (euro-denominated) for
designated time periods.

The Russell Global Index measures the performance of the global equity market based on all investable equity securities, and is constructed to provide a comprehensive and unbiased barometer for the global segment. The Index includes more than 10,000 securities in 47 countries, and covers 98% of the investable global market. All securities in the Russell Global Index are classified according to size, region, country and sector; as a result the index can be segmented into more than 300 distinct benchmarks.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index.

Small capitalization (small cap) investments involve stocks of companies with smaller levels of market capitalization (generally less than $2 billion) than larger company stocks (large cap). Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks. Investors should consider the additional risks involved in small cap investments.

Global equity involves risk associated with investments primarily in equity securities of companies located around the world, including the United States. International securities can involve risks relating to political and economic instability or regulatory conditions.

Opinions expressed by Mr. Eggins reflect market performance as of January 17, 2014 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

This material is not an offer, solicitation or recommendation to purchase any security.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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