top of page

Out of Bounds: Style Drift in the Russell 2000 Value Index

The following is provided by Dimensional Fund Advisors.

AMC and GameStop are priced squarely in the large cap growth space, and yet represented nearly 1.5% of the Russell 2000 Value Index as of May 31. On the scale of size discrepancies, this is akin to 7-foot-6-inch former NBA star Yao Ming visiting a kindergarten class. However, investors in strategies tracking the Russell 2000 Value Index may be surprised to learn the list of holdings inconsistent with the index’s definition goes much deeper, an outcome of the style drift potentially occurring with most index-based approaches due to infrequent rebalancing.

Drifting Away

Russell indices undergo an annual reconstitution event at the end of every June during which additions and deletions are made to the list of constituents in accordance with the indices’ rules. For example, the Russell 2000 Value Index constituent list is amended to generally include only value companies below the 1,000th-largest stock in the Russell 3000 Index.

What happens in between these reconstitution events? Imagine skipping lawn mowing duty for a few months and you’ll get the picture. Exhibit 1 illustrates the Russell 2000 Value Index’s holdings at the end of June 2020, following the 2020 reconstitution, compared to its holdings 11 months later, in May 2021. Each bubble represents one stock, plotted based on its percentile rank within the broader Russell 3000 Index on market capitalization (y-axis) and book-to-market ratio (x-axis). The size of the bubble indicates its weight within the index.

The left panel of the exhibit shows an emphasis on the small cap value corner following reconstitution. But by the end of the following May, many of the index’s holdings have drifted both upward in market cap and toward the growth end of the spectrum. As of May 31, nearly 16% of the index’s weight is accounted for by stocks among the largest 1,000, the domain of Russell’s large cap indices. While GameStop is not the only growth name in the index, its tiny book-to-market ratio of 0.03 combined with its $16.5 billion market cap give it a Yao Ming-like presence in the northwest corner of the style chart.

Missing the Boat?

Research tells us the relative performance of small cap value tends to be delivered by a small subset of the asset class1 and can show up in bunches.2 Both insights are relevant for style drift: infrequent rebalancing can reduce the likelihood of holding the stocks that deliver the premium as well as blunt one’s exposure to the asset class at inopportune times, potentially reducing an investor’s participation in strong runs for small cap value stocks.

Daily portfolio management can potentially spare investors from style drift. Of course, daily rebalancing would likely be prohibitively expensive for a strategy rigidly tracking an index. Dimensional uses a flexible daily process that seeks to balance a focus on premiums against short-term drivers of returns, costs, and other tradeoffs. This allows us to rebalance portfolios incrementally through time, keeping them focused on the targeted asset allocation and putting investors in a better position to capture what the market has to offer.

Think of it this way: which oral hygiene approach seems more effective—brushing your teeth for two minutes twice daily or for 24 hours once a year?


  1. 1Eugene F. Fama and Kenneth R. French, “Migration,” Financial Analysts Journal 63, no. 3 (June 2007): 48–58.

  2. 2“An Exceptional Value Premium,” Insights (blog), Dimensional Fund Advisors, October 5, 2020.

DISCLOSURES Large cap is defined as the top 90% of market cap (small cap is the bottom 10%), while value is defined as the 50% of market cap of the lowest relative price stocks (growth is the 50% of market cap of the highest relative price stocks). For educational and informational purposes only and does not constitute a recommendation of any security. The determinations of Large Value, Large Growth, Small Value, and Small Growth do not represent any determinations Dimensional Fund Advisors may make in assessing any of the securities shown.

This information is intended for educational purposes. Named securities may be held in accounts managed by Dimensional.

The securities identified do not represent all securities purchased or sold for client accounts. It should not be assumed that an investment in the securities identified was or would be profitable. These materials are not, and should not be construed as, a recommendation to purchase or sell the security identified or any other securities.

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates.

CANADA: These materials have been prepared by Dimensional Fund Advisors Canada ULC. It is provided for educational purposes only, should not be construed as investment advice or an offer of any security for sale and does not represent a recommendation of any particular security, strategy or investment product. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

bottom of page