What Is the Russell 2000 Index?
The Russell 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. The Russell 2000 is managed by London's FTSE Russell Group, widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies in the U.S. market.
Key Takeaways
- The Russell 2000 index is a market index composed of 2,000 small-cap companies.
- The index was launched in 1984 by the Frank Russell Company and is now managed by FTSE Russell.
- The index is frequently used as a benchmark for measuring the performance of small-cap mutual funds.
- Many investors see the index's breadth as giving it an edge over narrower indexes of small-cap stocks.
- Investors can replicate the returns of the Russell 2000 Index by investing in a fund that tracks the index.
Understanding the Russell 2000 Index
The Russell 2000 Index was launched in 1984 by the Frank Russell Company. It is a U.S. index managed by FTSE Russell, a subsidiary of the London Stock Exchange (LSE) Group. The index is composed of about 2,000 small-cap companies.
The index is the most widely quoted measure of the overall performance of small-cap to mid-cap stocks. It represents approximately 7%of the totalRussell 3000market capitalization and is made up of the bottom two-thirds in terms of company size of the Russell 3000 index. The larger index reflects the movements of nearly 96% of all publicly traded U.S. stocks.
As of FTSE Russel's index factsheet dated March 31, 2024, the index's top three holdings were Super Micro Computer (SMCI), Microstrategy (MSTR), and Comfort Systems USA (FIX). It is highest weighted in industrials, followed by healthcare, then financials. The table below highlights a breakdown of the index by industry.
| Russell 2000 by Industry | |
|---|---|
| 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 favorthe Russell 2000 Index because it reflects the investmentopportunity presented by the entiremarketrather than opportunities offered by narrower indices, which may contain bias or more stock-specific risk that can distort afund manager's performance. It's no surprise that many funds andexchange-traded funds (ETFs) mirror or are based onthe Russell 2000.
Many investors compare small-capmutual funds' movements against the index's movement. That's because the index's movement is seen as a reflection of the opportunities in that entiresub-section of the marketrather than narrower indices, which may contain biases or more stock-specific risks that can distort performance.
Key Metrics of the Russell 2000 Index
As of March 31, 2024, the average value for a company on the Russell 2000 was $4.82 billion, while the median market cap was $960 million. The largest stock by market cap on the index was $58.43 billion. The Russell 2000 first traded above 1,000 on May 20, 2013.
Two sub-indexes of the Russell 2000 have been created to track the performance of companies within it that contain unique characteristics that are desired by certain types of investors:
- The Russell 2000 Growth Index measures the performance of Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values.
- The Russell 2000 Value Index measures the performance of Russell 2000 companies withlower price-to-book (P/B) ratios and lower forecasted growth values.
The smallest 1,000 companies in the Russell 2000 make up the Russell 1000 Microcap Index. The Russell 2000 is itself composed of the two-thousand smallest companies in the broader Russell 3000 Index.
Special Considerations
TheRussell 2000 Index is weighted using a combination of market cap and the other indexes a stock is listed on. This means that a member stock's lastsaleprice, the number ofshares that can be traded, and whether it is on other indexes influence its listing on the index.
The other big difference between the Russell 2000 and other major indices is that it tracks small-cap stocks. The S&P 500 and Dow Jones Industrial Average (DJIA) indices, on the other hand, track large-cap stocks.
The index's returns can be replicated by investors who take the trouble to create a sizeable and complex portfolio that mirrors the index. However, there are far easier ways to get the same returns. For instance, investors can use index futures or index-based mutual funds that track the Russell 2000. The most popular option is an ETF. The most heavily traded of the ETFs is the iShares Russell 2000 index ETF (IWM).
What Does the Russell 2000 Indicate?
The Russell 2000 Index is a measure of the performance of 2,000 publicly traded small-cap U.S. companies.
What Is the Russell 2000 Methodology?
The Russell 2000 weighs U.S. small capitalization stocks using a float-adjusted market capitalization approach.
What's the Highest the Russel 2000 Has Ever Been?
The Russell 2000 reached a high of 2,458 on Nov. 7, 2021.
The Bottom Line
The Russell 2000 is an index of 2,000 small-cap companies that was first launched in 1984. It is widely used as a benchmark for U.S. small-cap stocks. The index comprises 2,000 of the smallest companies in the Russell 3000, which itself covers roughly 98% of the stocks publicly traded in the U.S. The Russell 2000 is rebalanced every June, and companies are added, deleted, or kept.
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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."
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