What Is The Russell 2000?
The Russell 2000 tracks the smallest 2,000 companies that make part of the Russell 3000 Index.
What Is the Russell 2000 Made Up Of?
The Russell 3000 tracks the 3,000 largest public companies with shares trading on the U.S. markets. The Russell 2000 Index (RTY) is a subset of that index and includes the 2000 components with the lowest market capitalizations. The Russell 1000 Index, meanwhile, contains the 1000 components with the largest market capitalizations.
Investors can reference the Russell 2000 to gauge how small-cap stocks are performing as a whole.
History of the Russell 2000 Small Cap Index
Along with the Russell 3000, the Russell 2000 small-cap index was formed in 1984 by the Frank Russell Company which is now managed by the FTSE Russell company, a subsidiary of the London Stock Exchange. Today, the Russell 2000 is the most commonly used index to determine the overall performance of small-cap U.S. stocks.
The market capitalization of the Russell 2000 is about 10% of the total market capitalization of the Russell 3000. So even though it has more companies than the Russell 1000, it signifies a smaller capitalization portion of the U.S. market.
Sectors & Stocks in the Russell 2000
A sample of companies within the Russell 2000 include:
- iRhythm Technoologies (IRTC)
- AAON Inc. (AAON)
- Old National Bankcorp (ONB)
- Synaptics (SYNA)
- KB Home (KBH)
- Treehouse Foods Inc (THS)
- Goodyear Tire & Rubber (GT)
Using the Russell 2000 Index as a Benchmark
The Russell 2000 Index is commonly used as an indicator of how the small-cap stocks are performing as a whole. It is a good index for an aggressive investor who is looking for growth opportunities. Investors with a high-risk tolerance may glean insights about the market as a whole by following the Russell 2000. It may also be a place to source potential individual stock investment ideas.
Tip: Investors should consider which benchmark(s) best match their investment style. For more aggressive investors who readily accept higher risk, the Russell 2000 is a good index to follow to get a sense of market conditions.
Russell 2000 vs. Russell 3000
Investors tend to look at the Russell 2000 when trying to understand the performance of U.S. small-cap stocks. On the other hand, for a broader market view, the Russell 3000 is a good index to track.
Other major indexes such as the S&P 500 and the Dow Jones Industrial Average track large-cap stocks and are not going to have the same returns as the Russell 2000. However, the Russell 1000 may perform quite similarly to the S&P 500 or other large-cap indices.
Russell 2000 vs. Russell 1000
The Russell 2000 and Russell 1000 are both subsets of the Russell 3000. The Russell 2000 and Russell 1000, when combined, make up the Russell 3000 index.
Note: Investors shouldn't expect the Russell 3000 to realize the average return of the Russell 1000 and Russell 2000 indices. This is because the large cap stocks represented by the Russell 1000 carry a much higher weighting within the Russell 3000 than the smaller cap stocks do.
Each year at the end of the second quarter, the Russell 3000 is rebalanced, re-ranking the top 3,000 stocks. The largest 1,000 stocks enter (or re-enter) into the Russell 1000, while the smallest 2,000 stocks are slotted for the Russell 2000. The indexes may see some minor quarterly changes based on IPOs and stock floats.
Tip: Companies moving from the Russell 2000 to the Russell 1000 may be interesting growth companies that are demonstrating positive market returns.
How To Invest In the Russell 2000
The easiest way to gain exposure to the Russell 2000 portfolio of stocks is to purchase an ETF that tracks this index. The iShares Russell 2000 Index ETF (IWM) is by far the largest. The second largest ETF that tracks the Russell 2000 Index is the Vanguard Russell 2000 ETF (VTWO).
The Russell 2000 tracks the 2,000 smallest companies found in the Russell 3000. These are generally small-cap stocks with smaller market capitalization.
Russel 2000 stocks can be either growth stocks or value stocks. In fact, you can invest in permutations of the index, such as the Russell 2000 Growth Index or the Russell 2000 Value Index.
The S&P 500 and Russell 2000 follow two different segments of the U.S. stock market. The S&P 500 follows 500 of the largest companies, whereas the Russell 2000 follows 2,000 of the smallest companies found in the Russell 3000.
This article was written by
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