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Understanding the Russell 2000 Index

The Russell 2000 is a market index that tracks 2,000 small-cap companies in the nation. Learn why it’s important and what criteria it uses in this article.

Market indexes allow investors to track sectors and industries, often acting as a gauge for the performance of segments of the economy. The Russell 2000, which tracks 2,000 small-cap companies in the nation, serves this purpose and is the basis for investing vehicles such as index and mutual funds.

This article will explain what the Russell 2000 is and why it’s important to investors. We’ll also offer insight into how companies end up in the index, how often it’s rebalanced, and how you can go about investing in it.

Key Takeaways

  • FTSE Russell, which also operates other notable indexes, manages the Russell 2000.
  • The Russell 2000 tracks small-cap companies in the U.S. stock market, weighted by market cap.
  • The index reconstitutes once per year to maintain its target composure.
  • ETFs, index funds, and mutual funds are the primary ways for investors to add it to their portfolios.

What Is the Russell 2000?

The Russell 2000 is a market index that comprises small-cap companies in the United States. As its name suggests, it includes approximately 2,000 of the smallest corporations from the larger Russell 3000 index, making up about 7% of its market cap. Founded in 1984, it is managed by FTSE Russell, a subsidiary firm of London Stock Exchange Group (LSEG) and overseer of over 15 other indexes.

Like other market indexes, the Russell 2000 allows investors and researchers to track the performance of a certain segment of the economy. Specifically, the 2000 index offers a view of small-cap companies in the U.S., acting as a measuring stick of the performance of small to mid-sized businesses in the $250 million to $2 billion range.

Where the Russell 2000 index differs from other indexes, however, is that it doesn’t tell an accurate story of the holistic U.S. stock market performance. According to Asher Rogovy, chief investment officer at Magnifina, a financial advisor firm in New York, “[B]ecause the Russell 2000 targets small-cap stocks, it only accounts for approximately 10% of total US stock capitalization while the S&P 500 represents about 80%.”

Companies in the Russell 2000 Index

The companies within the Russell 2000 index, as mentioned, are small-cap companies. That is, they’re companies with a market capitalization (cap) of between $250 million to $2 billion. They could be from any industry and are weighted using a market capitalization system, taking into account the overall market value of a company’s outstanding shares.

Below are the top ten constituent companies in the index, per FTSE Russell:

CompanyTicker Symbol
Super Micro Computer Inc.SMCI
Microstrategy Inc.MSTR
Comfort Systems USA Inc.FIX
Elf Beauty Inc.ELF
Light & Wonder Inc.LNW
Carvana Co.CVNA
Onto Innovation Inc.ONTO
Simpson ManufacturingSSD
Viking Therapeutics Inc.VKTX
Weatherford Intl. Plc.WFRD

Rebalancing Frequency

FTSE Russell rearranges the companies, also known as constituents, in the index once per year in a three-month process lasting from April to June. As it notes on its website, this allows the index to remain a consistently accurate depiction of the state of small- to mid-sized businesses in the nation. Because the list updates annually, it’s not uncommon for companies to leave the index, especially if their market cap has grown too high or low.

How to Invest in the Russell 2000

While it’s not technically possible to invest in a market index, as it’s just there to track a group of companies in a sector, there are many effective ways to add the Russell 2000 index or its constituent companies to your portfolio. The most direct method would be to buy shares of individual businesses listed on the index. However, this may end up being expensive and can often be difficult, as it requires you to make the right decisions on individual stocks to buy.

The most common way to invest in the Russell 2000, however, is through mutual funds and exchange-traded funds (ETFs) that track it. These allow you to buy indirect shares of the companies in the index, giving you exposure to a wide variety of different sectors and industries. And as the index rebalances, so will the fund’s allocation.

Two ETFs that you’ll often see that closely match the index are the Vanguard Russell 2000 Index Fund ETF (VTWO) and the iShares Russell 2000 ETF (IWM). According to Rogovy, the latter is one of the best options for an “ETF benchmarking against the Russell 2000 index.”

Index funds are another common option for investing in the Russell 2000. You’ll commonly see well-known companies, such as Fidelity (FSSNX) or Charles Schwab (SWSSX), offer funds that focus on small-cap companies, which often focus on the Russell 2000. Like ETFs, these aim to hug the trajectory of the index through both up and down periods; however, they’re typically passively managed and often don’t sway too far from the index’s performance.

Frequently Asked Questions

What is the all-time high for the Russell 2000?

As of this article’s writing, the all-time high for the Russell 2000 occurred on Monday, November 8, 2021, when it closed at 2,442.74.

Is it a good idea to invest in the Russell 2000?

Whether it is or isn’t a good idea to invest in the Russell 2000 can depend on your situation and goals. As an investing target, the index has some advantages. According to Asher Rogovy, “The Russell 2000 is highly diversified, which tends to reduce risk.” This is because it includes companies from several sectors and industries, such as technology, energy, real estate, medical, and more, per the FTSE Russell’s factsheet on the index.

The Russell 2000’s primary drawback is the volatility that can come with small-cap securities. Rogovy says, “Smaller-cap stocks are viewed as riskier than large-cap stocks,” such as those found in the S&P 500 or Russell 1000.

What is the difference between the Russell 2000 and S&P 500?

The S&P 500 and Russell 2000 are two commonly discussed market indexes in the U.S. with some similarities and substantial differences. They also both utilize a market cap weighting system. The first major difference between the two is the overall number of companies they each hold, as well as their scope. The Russell 2000 focuses on small-cap stocks and includes nearly 2,000 companies, while the S&P 500 comprises 500 of the largest companies in America.

The two also differ in how their respective overseeing organizations, FTSE Russell and S&P Global, select companies to include. “Russell uses an objective, rules-based approach to selecting stocks [to] its indices, whereas S&P uses a committee to target its indices to be representative of class while using fewer stocks,” Rogovy explains.