Noting the poor liquidity and relative financial instability of small-cap equities, Standard & Poor’s developed the S&P SmallCap 600 in 1994. This index of small caps is designed to be an efficient portfolio of companies within the small-cap realm. Stocks within the S&P Small Cap 600 index must meet specific criteria for inclusion, including that they are liquid and financially viable.

S&P’s guideline for inclusion in the this Small Cap index is a market capitalization of $300 million to $1.5 billion; however, exceeding the top end of that range is not a reason to take the equity out of the index. Reconstitution of the index is on an as-needed basis to ensure that it accurately reflects small cap companies as a whole. Companies in the S&P Small Cap 600 should have at least four consecutive quarters of positive earnings, and they must exhibit adequate liquidity. S&P also considers sector representation when constructing the Small Cap 600 index. The index represents about 3 percent of U.S. equities in terms of market capitalization.

Standard & Poor’s, a division of the McGraw-Hill Companies, provides credit ratings, indices, investment research and data for individual and professional investors, but perhaps is best known for its S&P 500 large cap index {Link internally if there will be an S&P 500 large cap index page}. Standard & Poor's Index Services offers investment professionals around the world an array of choices, from efficiently representative indices to broadly comprehensive benchmarks. S&P also provides investment firms across the globe with research and advice on asset allocation and portfolio strategies.

The largest company in the S&P SmallCap 600 index at the end of 2006 was Manitowoc Co., an industrial company based in Wisconsin. Manitowoc makes ice-making and refrigeration products, in addition to cranes and other equipment that handles materials. Traded on the New York Stock Exchange, the company had net income of $66 million in 2005, according to the most recent annual report. As net income grew, so did the value of the shares, rising recently to $60 each from about $15 three years ago. Capitalization has increased markedly as well, to $3.66 billion at the end of 2006. 

The S&P 600 small caps represents all market sectors, as do the Russell 2000 Index {Link internally to the Russell 2000 page}and Russell Micro-cap Index {Link internally to the Russell micro cap page}. S&P says a company’s industry classification contributes to the sector balance of the index, keeping it in line with the makeup of all eligible companies within the market cap range. At the end of 2006, the index’s top sector was information technology, at 16.9 percent, followed by industrials at 16.8 percent and financials at 16.3 percent. The least represented sector in the S&P Small Cap 600 was telecom services at 0.4 percent.

The S&P SmallCap index rose 15.1 percent in 2006, lagging the broader Russell 2000 Index and the Russell Micro-cap Index. S&P also offers growth and value SmallCap funds with Citigroup, using such ratios as book value, cash flow and sales to the price of the stock for its value index. The growth index includes consideration of 5-year growth rates in earnings and sales.