Key Points
Historically, index deletions have beaten the Russell 2000 Value Index in spectacular fashion and could add an abnormal upside to a portfolio when the current growth-dominated bubble starts to deflate.
Deletions lag the market by more than half in the year leading up to their removal from an index, but they historically outperform the market for at least five years after the breakup.
A deletions strategy relies on two growth drivers to fuel performance: long horizon mean reversion and a liquidity effect.
Rob Arnott is the corresponding author.
