The Russell 2000 Index is a stock market index that measures the performance of 2,000 smaller companies included in the broader Russell 3000 Index. Managed by London’s FTSE Russell Group, it is widely regarded as a barometer of the U.S. economy due to its focus on smaller companies within the market.
Key Highlights
- The Russell 2000 Index is composed of 2,000 small-cap companies.
- First launched in 1984 by the Frank Russell Company, it is currently managed by FTSE Russell.
- The index serves as a common benchmark for small-cap mutual funds’ performance measurement.
- Due to its breadth, the index is often considered superior to narrower indexes of small-cap stocks.
- Investors can achieve similar returns to the Russell 2000 Index by investing in funds that track it.
Understanding the Russell 2000 Index
The Russell 2000 Index, established in 1984 by the Frank Russell Company, is a pivotal American index managed by FTSE Russell, a subsidiary of the London Stock Exchange Group. This index includes about 2,000 small-cap companies and is a primary measure of small-cap to mid-cap stock performance.
The index reflects roughly 7% of the total market capitalization of the Russell 3000 and consists of the bottom two-thirds in terms of company size within the larger index. The Russell 3000 itself accounts for nearly 96% of the market movements of publicly traded U.S. stocks.
As of FTSE Russell’s factsheet dated March 31, 2024, the index’s top three holdings were Super Micro Computer (SMCI), MicroStrategy (MSTR), and Comfort Systems USA (FIX). Its highest weightings are in industrials, healthcare, and financials sectors. Below is an industry-wise breakdown of the index:
| Industry | % of Portfolio |
|---|---|
| Industrials | 19.00% |
| Healthcare | 15.15% |
| Financials | 14.84% |
| Technology | 13.92% |
| Consumer Discretionary | 13.09% |
| Energy | 7.81% |
| Real Estate | 5.79% |
| Basic Materials | 3.91% |
| Consumer Staples | 2.68% |
| Utilities | 2.64% |
| Telecommunications | 1.17% |
Mutual fund investors favor the Russell 2000 Index for its comprehensive representation of the market opportunity, as opposed to narrower indices, which might include biases or stock-specific risks that can affect fund manager’s performance. Many mutual funds and exchange-traded funds (ETFs) replicate or are based on this index.
Vital Metrics of the Russell 2000 Index
As of March 31, 2024, the average company value on the Russell 2000 was $4.82 billion, and the median market cap stood at $960 million. The largest stock by market cap in the index was valued at $58.43 billion, with the Russell 2000 first surpassing the 1,000 mark on May 20, 2013.
Two sub-indexes exist within the Russell 2000 to capture companies with specific characteristics:
- Russell 2000 Growth Index: Measures the performance of companies with higher price-to-value ratios and higher anticipated growth values.
- Russell 2000 Value Index: Measures the performance of companies with lower price-to-book ratios and lower anticipated growth values.
The smallest 1,000 companies in the Russell 2000 are collectively part of the Russell 1000 Microcap Index. Meanwhile, the Russell 2000 consists of the two-thousand smallest companies within the Russell 3000 Index.
Special Considerations
The Russell 2000 Index uses a blend of market cap weighting and the external indexes a stock is listed on. Therefore, a member stock’s last sale price, number of tradable shares, and listing on other indexes affect its position.
Unlike major indices like the S&P 500 and Dow Jones Industrial Average (DJIA)—which track large-cap stocks—the Russell 2000 emphasizes small-cap stocks.
Investors can mirror the returns of the Russell 2000 by creating a detailed and complex portfolio similar to the index. However, simpler methods are available, such as using index futures or index-based mutual funds. The most popular method is investing in an ETF. Notably, the iShares Russell 2000 Index ETF (IWM) is heavily traded.
The Russell 2000 at a Glance:
What Does the Russell 2000 Indicate?: It measures the performance of 2,000 small-cap U.S. companies.
Russell 2000 Methodology: It uses a float-adjusted market capitalization approach to weigh small-cap U.S. stocks.
Peak Performance: The index reached an all-time high of 2,458 on November 7, 2021.
Conclusion
The Russell 2000 Index, comprising 2,000 small-cap companies, has been a critical U.S. small-cap benchmark since its launch in 1984. The index includes the smallest companies in the broader Russell 3000, capturing diverse market movements. Rebalanced every June, the Russell 2000 is essential for investors targeting small-cap performance, often replicated by funds and ETFs, epitomizing its influential status in the financial landscape.
Related Terms: Russell 3000 Index, FTSE Russell Group, market capitalization, exchange-traded funds, mutual funds.
References
- FTSE Russell. “All Index Factsheets”. Search for Russell 2000, click on link, download factsheet.
- FTSE Russell. “All Index Factsheets”. Search for Russell 3000, click on link, download factsheet.
- TradingView. “RUT”.
- FTSE Russell. “All Index Factsheets”. Search for Russell 2000 Growth, click on link, download factsheet.
- FTSE Russell. “All Index Factsheets”. Search for Russell 2000 Value, click on link, download factsheet.
- FTSE Russell. “All Index Factsheets”. Search for Russell Microcap, click on link, download factsheet.
- TradingView. “RUT”.
