The S&P MidCap 400 and SmallCap 600

The MidCap 400 arrived in 1991 and the SmallCap 600 in 1994, extending the S&P family below the S&P 500. Together the three form the S&P Composite 1500, which covers the large majority of US listed market value.

They are built the same way as the 500: eligibility criteria plus committee selection, weighted by float-adjusted market capitalization. And like the 500, they require companies to be profitable before admission.

The profitability screen

This is the whole story of these indexes, and the reason they behave differently from the Russell 2000 despite covering broadly the same companies.

Small-cap universes contain a large number of companies that do not yet earn money — early-stage biotechnology, pre-revenue technology, exploration-stage resources. The Russell 2000 includes them if they are large enough. The SmallCap 600 largely does not.

The result is often described as a quality tilt. Whether that is an advantage depends entirely on the period: screening out loss-making companies helps when speculative names fall and hurts when they lead. What is not in dispute is that two indexes both labelled "US small cap" can hold quite different things.

The MidCap 400

Mid caps sit in an awkward spot in most allocation frameworks — too small for large-cap mandates, too large for small-cap ones — and are frequently under-owned as a result. The 400 exists to make the segment addressable.

Its constituents are companies that have grown past small-cap status without reaching the size for the 500. Some are on their way up; some have come down. The index is a useful read on established but not dominant American businesses, and it is less exposed to the mega-cap concentration that now defines the 500.

Facts worth knowing

• The Composite 1500 combines all threeS&P 500 plus MidCap 400 plus SmallCap 600, covering the large majority of US listed value.
• Membership is not mutually exclusive with the Russell familyA company can sit in the SmallCap 600 and the Russell 2000 simultaneously — they are different providers measuring overlapping universes.
• No fixed rebalancing dateChanges are made as needed, which avoids the concentrated turnover of a scheduled reconstitution.
• Both are float adjustedShares not available to public investors are excluded from the weighting.
• Size boundaries moveThe market-capitalization ranges defining each tier are reviewed and adjusted as the market grows.

Common questions