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CRSP: What Are CRSP Indexes And The Center For Research In Security Prices?
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CRSP: What Are CRSP Indexes And The Center For Research In Security Prices?

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Ask anyone who’s not a financial advisor if they’ve ever heard of the Center for Research in Security Prices (CRSP), and you’d most likely get a blank stare. Yet nearly $2 trillion of U.S. mutual fund and exchange-traded fund (ETF) assets track CRSP indexes, including the CRSP U.S. Total Market Index, the CRSP U.S. Mid Cap Market Index and the CRSP U.S. Small Cap Market Index.

What Is CRSP?

The Center for Research in Security Prices has been around for more than 60 years, and its wonky name is explained by the fact that it was a project originally undertaken by academics at the University of Chicago’s Booth School of Business. The first CRSP database covered stock prices for companies listed on the New York Stock Exchange (NYSE) between 1926 and 1960.

Today, the CRSP U.S. Stock Database tracks information on more than 32,000 active and inactive securities listed on all the major U.S. exchanges. The CRSP—pronounced “crisp”—maintains price databases on everything from real estate investment trusts (REITs) to U.S. Treasury securities.

According to the CRSP, nearly 500 academic institutions in 35 countries rely on CRSP data for research as do corporations and government entities like the Federal Reserve.

However, it wasn’t until 2012 that the CRSP packaged its data into investable stock indexes that could be used by mutual funds and exchange traded funds (ETFs) as benchmarks. A year later, Vanguard made CRSP indexes the benchmark for its U.S. stock index funds and ETFs. That means CRSP indexes are the tool Vanguard uses to measure its funds’ success. To date, Vanguard is the only provider that uses CRSP indexes as a benchmark.

There are currently 33 CRSP investable indexes. The CRSP indexes are sliced and diced along the lines of market capitalization, investment styles (by growth and value options or by market cap) and market sector.

What Is the CRSP U.S. Total Market Index?

The CRSP U.S. Total Market Index takes the kitchen-sink approach, tracking shares of 99.5% of U.S. stocks, ranging from small-cap stocks to behemoths such as Apple and Microsoft.

The CRSP US Total Market Index currently includes more than 3,700 stocks with a median market capitalization of $112 billion. For the 12 months through March 2021, the index gained 62.5%. The index’s 10-year annualized rate through March was 13.8%.

“A lot of research shows that over time it’s a handful of stocks that really drive returns,” says Allan Roth, founder of Wealth Logic, an investment advisory firm in Colorado Springs, Co. Owning a broad-based total market index fund or ETF takes the guesswork out of trying to pick the handful of winners. “If you told me at the beginning of 2020 that I would want to own Zoom, I would have had to look up Zoom,” says Roth. Thanks to pandemic lockdowns, though, Zoom gained nearly 400% in 2020.

Last year the kitchen-sink approach also meant total market investors owned Tesla (TSLA) for all 12 months—during which time it went up more than 740%. Investors in index funds and ETFs that track the S&P 500 index didn’t own the electric car maker for most of 2020 as Tesla was only added to that benchmark in late December.

What Is the CRSP U.S. Mid Cap Market Index?

Mid-cap stocks are typically companies with a total market capitalization of between $2 billion and $10 billion. The S&P Midcap 400 index currently has a median market cap of $5.5 billion.

The mid-cap pocket of the market has historically generated long-term returns higher than large caps, with less volatility than small caps.

The CRSP U.S. Mid Cap Market index takes a different approach to defining mid-cap, skewing a bit larger. The median market cap for the CRSP Mid Cap Index at the end of March was nearly $24 billion .

CRSP builds its market-cap indexes by first lining up all the US stocks in its database. Companies that fall in the top 85% based on market capitalization are considered large-cap stocks.

The CRSP U.S. Mid Cap Market Index targets stocks with market capitalizations that fall within the 70% to 85% band. For the 12 months through March the CRSP Mid Cap Market Index gained more than 70%. Its 10-year annualized return was 12.5%.

What Is the CRSP U.S. Small Cap Market Index?

Small-cap stocks typically have market capitalizations between $300 million and $2 billion. This end of the market cap ladder is a diverse mix, with some companies in their early stages of growth, as well as companies on the elevator down, as they lose their competitive edge and may be headed into bankruptcy.

Here, too, the CRSP approach skews slightly bigger than typical small-cap indexes, like the Russell 2000 index. The CRSP U.S. Small Cap Market Index targets stocks with market capitalizations that fall within the bottom 2% to 15% of the entire basket of U.S. stocks. At the end of March 2021, the index included more than 1,400 stocks, with a median market cap of $6 billion. The Russell 2000 index of small-cap stocks, meanwhile, currently has a median market capitalization of $3.1 billion.

The CRSP Small Cap index gained nearly 88% in the year through March 31. Its 10-year annualized return was 12.3%.

How to Invest in CRSP Indexes

If you’re interested in index funds and ETFs that track CRSP indexes, Vanguard is your only option. Currently, 14 Vanguard mutual funds (and their ETF counterparts) track CRSP indexes. If you happen to invest in a Vanguard target date fund in your workplace 401(k) or 403(b) plan, you may own stock funds that track CRSP indexes.

The Vanguard U.S. Total Market Index fund (and ETF) is the most widely used portfolio tracking a CRSP index, with total assets of more than $1.2 trillion at the end of March.

Popular Vanguard index funds and ETFs that track CRSP indexes include:

  • Vanguard U.S. Total Market (VTSAX)
  • Vanguard U.S. Large Cap Growth (VWUSX)
  • Vanguard U.S. Mid Cap Growth (VMGRX)
  • Vanguard U.S. Small Cap (VSMAX)

The low cost and instant diversification of index funds makes them a smart option to consider when building a long-term investment portfolio. Deciding on the right mix of index funds requires understanding the underlying mechanics of a given index fund and your willingness to take on the risk you may lose the money you invest.

The secret sauce of long-term investing success is being able to weather market downturns without selling when the stock market falls into one of its intermittent potholes.

For instance, the Vanguard Total Stock Market Index mutual fund has more than doubled in value over the past five years. But that included a stretch in late 2018 when it fell nearly 20% and a 35% drop during the pandemic bear market in February and March of last year. The Vanguard Small Cap Index mutual fund has also doubled in value over the past five years, but that included a 22% loss during the 2018 selloff and nearly 42% during the pandemic bear market. In either case, if you had sold during the dip, you’d have missed out on at least part of the recovery, hamstringing your long-term returns.

To build a portfolio you have the confidence to stick with, you may want to talk with a financial advisor.

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