Index-construction differences among market-cap-weighted funds can materially impact performance in the small-cap arena because market impact costs are more meaningful. For example, the Russell 2000 Index's popularity and lack of buffering rules have contributed to its chronic underperformance compared with other popular small-cap U.S. stock indexes.
On the other hand, funds tracking less popular small-cap indexes that employ buffering rules to limit turnover should have a leg up over the long haul.
Adam McCullough, CFA has a position in the following securities mentioned above: VB. Find out about Morningstar's editorial policies.