Indexes · Small cap
S&P 600, The Profitability Screen
Two indices are sold as American small cap, and one documented rule separates them: this one requires a company to have been profitable to get in. Most of the difference in how they behave traces back to that gate.
How membership is decided
Two stages, and both matter. A company must first meet published eligibilitycriteria, domicile and listing venue, a minimum public float, liquidity, a market-capitalisation band, and positive earnings in the most recent quarter and across the trailing four quarters. Meeting them makes it eligible. A committee at S&P Dow Jones Indices then decides which eligible companies are actually added.
That is a fundamentally different construction from the Russell 2000, where membership is a pure rank on one date and nobody decides anything. Neither approach is superior in the abstract; they produce different lists, and knowing which you are looking at is the point of this page.
What the earnings gate removes
The profitability requirement is one line in a methodology document and it excludes a large, identifiable population: companies that are valued highly enough to rank as small caps while making losses. Early-stage biotechnology is the clearest case, and much of unprofitable early-stage technology follows it.
Those companies are in the Russell 2000, its rules never ask about earnings, and they are not here. That is the whole of the structural difference between two indices routinely quoted interchangeably, and it is why their returns and volatility have diverged persistently rather than randomly.
One qualification keeps the claim honest: the test is applied at entry. A constituent that later stops making money is not automatically ejected. The index is therefore a set of companies that were profitable when they joined, which is a weaker and more accurate description than "profitable companies".
Two ways a list changes
| Property | S&P 600 | Russell 2000 |
|---|---|---|
| Selection | Eligibility rules plus a committee. | Rank on one date. No discretion. |
| Profitability | Required at entry. | Never tested. |
| When membership changes | Continuously, as events require. | Wholesale, at the annual reconstitution. |
| Reproducible from public rules | Not exactly, the committee decides. | Yes, given the ranking data. |
The third row has a practical consequence for anything volume-based. The Russell reconstitution concentrates enormous obliged trading into a single session, which distorts any volume reading taken across it; S&P changes are spread through the year, so each one moves one stock hard and the index barely at all. The same total amount of index maintenance, delivered very differently.
Reading breadth across this list
One practical note for anything in the breadth section. A count of advancing and declining issues taken across the S&P 600 is a count across a curated, profitability-gated population, so it will behave differently from the same count across the Russell 2000, and both differ again from an exchange-wide count that includes funds and preferred issues.
None of the three is wrong; they are counts of different lists. What is wrong is comparing a breadth reading from one against a threshold derived from another, which is the same error as quoting a TRIN level from a different exchange or an era with a different number of listings.
Getting the current list
Not reproduced here, for the same reason as everywhere else on this site: membership changes as events require, so a table of 600 tickers is wrong continuously rather than annually. S&P Dow Jones Indices publishes the methodology and announces changes, and any ETF tracking the index discloses its full holdings daily, which is the most current free list available.
And the same caution: a current list is a description of today. Using it to study the past silently removes every company that was deleted for failing, which flatters any historical result computed from it.
What the gate does not do
It is worth being explicit about the limits of a single filter, because "the profitable small-cap index" is a description that runs ahead of the methodology. The earnings test says nothing about leverage, cash generation, accounting quality or governance, and it is not re-applied once a company is inside.
Nor does it protect the index from the ordinary hazards of the segment. Small companies are thinly traded, more exposed to a single customer or product, and more likely to be taken over, none of which the gate addresses. What the rule delivers is one specific exclusion, applied once, and the honest claim stops there.
Why the distinction earns a page
Because "US small cap" is quoted constantly as if it named one thing. It names at least two, they differ by a documented rule, and the difference is large enough to show up in returns, in volatility, and in how each index behaves through a downturn.
That is the same discipline this reference applies to indicators: a measure is only usable when you know what it includes and what it discards. An index is a measure, its methodology is the formula, and reading a small-cap figure without knowing which of the two produced it is the equivalent of quoting an RSI level without saying what period was used.
Frequently asked questions
How does a company enter the S&P 600?
By meeting a set of published eligibility criteria and then being selected by a committee. The criteria cover domicile and listing venue, a minimum public float, liquidity, a market-capitalisation band, and — the rule that distinguishes this family — profitability: positive earnings in the most recent quarter and over the sum of the trailing four quarters. Meeting the criteria makes a company eligible, not a constituent; S&P Dow Jones Indices decides which eligible companies are added.
What exactly is the profitability requirement?
Positive as-reported earnings for the most recent quarter and for the sum of the four most recent quarters. It is applied at the point of entry, so it is a gate rather than a continuous test: a constituent that subsequently makes losses is not automatically removed. That distinction matters: the index is a collection of companies that were profitable when they joined, which is not the same as a collection of profitable companies.
How does that change it against the Russell 2000?
It removes an entire category of company from consideration. The Russell 2000 takes whatever ranks between 1,001 and 3,000 by market value, so persistently loss-making companies, including large parts of the biotechnology and early-stage technology cohort, are constituents there and were never eligible here. Two indices described as US small cap therefore hold measurably different populations, and their returns and volatility have differed persistently as a result.
Which is the better small-cap benchmark?
They answer different questions, and the honest response is that neither is the benchmark. The Russell 2000 is a mechanical slice of the market as it is, including its unprofitable parts; the S&P 600 is a curated set with a quality gate at the door. If you want to measure the small-cap market, the first is more representative. If you want to measure the small-cap companies that were making money when they entered, the second is more specific, and much of the published performance difference between them follows from that, not from anything else.
Is the committee a weakness?
It is a genuine discretionary element and it cuts both ways. Discretion allows the index to avoid mechanical absurdities that a pure ranking cannot, such as adding a company days before a known merger. It also means membership is not fully reproducible from public rules: two people applying the published criteria will produce a list, and it will not be exactly this one. Anyone testing a strategy on index membership should know they are testing a committee’s output.
When does membership change?
Continuously rather than on one date. Additions and deletions are announced as they are needed (a constituent taken private or merged is replaced promptly) with share-count and float updates handled on a quarterly schedule. That is a structural difference from the Russell family, where the entire membership is rebuilt at one annual reconstitution: S&P changes trickle, Russell changes arrive at once.
Where do I get the current constituents?
From S&P Dow Jones Indices, and in practice from the daily holdings disclosure of any ETF tracking the index, every fund publishes its full holdings, which is the most convenient current list available free. This page does not reproduce a constituent table on purpose: 600 tickers go out of date continuously here, since membership changes as events require rather than once a year.
Does the profitability rule make it a quality index?
It is one quality screen, applied once, at entry. That is a much narrower claim than "quality index" implies. There is no ongoing profitability test, no balance-sheet requirement, and no factor tilt beyond the gate. The effect is real and it is a single filter, and describing it as anything more is the sort of stretch this reference tries to avoid.