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SYS-CON MEDIA Authors: Liz McMillan, Esmeralda Swartz, Hovhannes Avoyan, Elizabeth White, Adrian Bridgwater

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Small Cap Volatility: "Small Cap Premium," or Difference in Implied Volatility Between U.S. Small Cap and U.S. Large Cap Stocks, Was Much Higher in April and May 2014 Relative to Full-Year 2013, According to the CBOE Russell 2000 Volatility Index and CBOE

SEATTLE, WA -- (Marketwired) -- 06/10/14 -- For April and May, implied volatility for the U.S. small cap equity market as reflected by closing prices for the CBOE Russell 2000 Volatility Index(SM) (RVX(SM)) increased and as of May 30 was significantly higher than large cap volatility as measured by the CBOE Volatility Index® (VIX®).

Small cap volatility is almost always higher than large cap volatility. This "premium" averaged 28% in 2013. However, for April and May 2014 the premium averaged 50% with average RVX level of 20.00 and VIX level of 13.34. And as of Friday, May 30, RVX was 17.74 and VIX was 11.40, a premium of 56%.

"In 2013 the Russell 2000® Index outperformed other domestic market indexes such as the Russell 1000® Index and RVX was lower to reflect this outperformance," said Russell Rhoads, CFA and instructor with The Options Institute at the Chicago Board Options Exchange. "This year as of May 30, the Russell 2000 Index has underperformed other U.S. equity market indexes and RVX has been elevated to reflect investor's increased risk perception for small cap stocks."

"We have seen market turbulence and an increase in volatility amid an approximately 10% correction in March through May of this year for the U.S. small cap market as reflected by the Russell 2000 Index. Forward expectations for U.S. small cap volatility as compared to large cap volatility, as reflected by the relative levels for RVX and VIX, have risen significantly since the beginning of the year," said David Koenig, CFA, FRM, index investment strategist with Russell Investments. "This underscores the value of having a diverse set of index-based tools to measure relative market returns and volatility."

In late June, Russell will undergo its annual indexes reconstitution. At reconstitution, the entire Russell family of global indexes, including the Russell 2000 Index on which the RVX is based, will be rebalanced and the ranges within and breakpoints between U.S. large and small-cap stocks will be adjusted to reflect the current market environment.

For more information on the CBOE Russell 2000 Volatility Index, go to the Russell Indexes website or CBOE Russell 2000 Volatility Index microsite.

              Volatility Indexes: Average Daily Closing Prices

---------------------------------------------------------------------------
                               Apr - May 2014           Jan - Dec 2013
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           RVX                      20.0                     18.1
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           VIX                      13.3                     14.2
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     RVX/VIX Premium                50%                      28%
---------------------------------------------------------------------------

Source: Russell Investments & CBOE. Calculations are daily closing prices of the CBOE Russell 2000 Volatility Index divided by number of market days for each period. CBOE and VIX are registered trademarks of the Chicago Board Options Exchange; S&P 500 is a registered trademark of Standard & Poor's Corporation.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

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.

Opinions expressed by Mr. Koenig and Mr. Rhoads reflect market performance as of May 30, 2014 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

Forecasting is inherently uncertain and may be incorrect. It is not representative of a projection of the stock market, or of any specific investment.

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.

Copyright © Russell Investments 2014. All rights reserved.

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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