Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
  3. Client Login
MarketScape · 01.18.24

Why Returns of Similar Growth and Low Volatility Indexes Varied So Widely

The divergence of performance last year among supposedly similar indexes may surprise some investors. We analyze what happened.

  • Portfolio Construction
  • Index Equity
  • Equity Insights
  • Market & Investment Trends

Key Points

What it is

We show how performance among different growth and low volatility equity indexes diverged last year and why examining index design matters.

Why it matters

If investors don’t understand differences in index design, the performance of indexes more likely will surprise them.

Where it's going

Investors who take time to understand how index providers construct their indexes more likely will avoid experiencing unpredictable outcomes.

Investors seeking to add exposure in their portfolios to equity styles such as growth, value, dividend or low volatility can choose from an array of options across index providers. We think investors understand that different indexes dedicated to the same style often produce significantly different results, but this was especially true last year with just a handful of tech-related companies leading the U.S. stock rally. As investors adjust their portfolios for 2024, it’s important to focus on index design to better understand what may drive future performance. Let’s take a closer look.


As an example, we look what happened with the S&P 500 Growth Index and Russell 1000 Growth Index. Over 20 years, the between the indexes is 2.2%, roughly representing the annual difference in returns on average. But in 2023, the difference was multiples of the tracking error. The Russell index outperformed the S&P index by over 12.5%, the largest annual difference on record. We trace the difference to how the providers defined a growth company. S&P uses a momentum factor that left it woefully underweight to technology and overweight to energy for much of 2023 compared to the Russell index. Given that momentum now resides within growthier sectors such as technology, the two indexes look much more similar headed into 2024 than in 2023. This shows just how much index composition can change in a short time.


We found a similar pattern with indexes dedicated to low volatility equities, which seek to invest in stocks that are less volatile than the broad market. Performance of the MSCI USA Minimum Volatility Index and the S&P 500 Low Volatility Index have been about the same in the five years from 2018 to 2022. But that changed drastically in 2023, when the MSCI index outperformed the S&P index, which had a loss, by about nine percentage points. Again, this occurred because different methodologies caused some very different sector weights. The MSCI index was significantly overweight to the high performing technology sector and underweight to the more modest consumer staples sector versus the S&P index.


The for portfolios targeting similar exposures in 2023 demonstrates to investors the importance of staying alert to the composition and methodology of their index investments. Regardless of whether the Magnificent 7 continue their incredible run in 2024, or whether new leadership emerges, doing the homework to more deeply understand what may influence the performance of an index may lead to more predictable outcomes.

Main Point

Doing the Homework

The difference in outcomes for portfolios targeting similar exposures in 2023 demonstrates to investors the importance of staying alert to the composition and methodology of their index investments. Regardless of whether the Magnificent 7 continue their incredible run in 2024, or whether new leadership emerges, doing the homework to more deeply understand what may influence the performance of an index may lead to more predictable outcomes.

Related Content

S&P 500 Index Rebalance: Uber Addition Boosts Weight of Transportation

  • Read Now
gray stairs falling into place

Michael Hunstad, Ph.D.

Deputy Chief Investment Officer & Chief Investment Officer of Global Equities

Michael Hunstad is deputy chief investment officer and chief investment officer of global equities for Northern Trust Asset Management. Michael is a member of the Asset Management Executive Group and has oversight of all equity portfolio management, research and trading activities including quantitative, index and tax-advantaged strategies. Additionally, he assists with the development of investment vision, strategy portfolio construction and risk management framework for the firm’s broad investment platform.

Read Bio

Contact Us

Interested in learning more about our expertise and how we can help? 


For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information contained herein is intended for use with current or prospective clients of Northern Trust Investments, Inc (NTI) or its affiliates. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTI or its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.


This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.


All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTI or its affiliates’ efforts to monitor and manage risk but does not imply low risk.


Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTI or its affiliates. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For additional information on fees, please refer to Part 2a of the Form ADV or consult an NTI representative.


Forward-looking statements and assumptions are NTI or its affiliates’ current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve.  Actual results could differ materially from the results indicated by this information.


Hypothetical portfolio information provided does not represent results of an actual investment portfolio but reflects representative historical performance of the strategies, funds or accounts listed herein, which were selected with the benefit of hindsight. Hypothetical performance results do not reflect actual trading. No representation is being made that any portfolio will achieve a performance record similar to that shown. A hypothetical investment does not necessarily take into account the fees, risks, economic or market factors/conditions an investor might experience in actual trading. Hypothetical results may have under- or over-compensation for the impact, if any, of certain market factors such as lack of liquidity, economic or market factors/conditions. The investment returns of other clients may differ materially from the portfolio portrayed. There are numerous other factors related to the markets in general or to the implementation of any specific program that cannot be fully accounted for in the preparation of hypothetical performance results. The information is confidential and may not be duplicated in any form or disseminated without the prior consent of NTI or its affiliates.


This information is intended for purposes of NTI and/or its affiliates marketing as providers of the products and services described herein and not to provide any fiduciary investment advice within the meaning of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). NTI and/or its affiliates are not undertaking to provide impartial investment advice or give advice in a fiduciary capacity to the recipient of these materials, which are for marketing purposes and are not intended to serve as a primary basis for investment decisions. NTI and its affiliates receive fees and other compensation in connection with the products and services described herein as well as for custody, fund administration, transfer agent, investment operations outsourcing, and other services rendered to various proprietary and third-party investment products and firms that may be the subject of or become associated with the services described herein.


Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.


Not FDIC insured | May lose value | No bank guarantee