Russell 2000 Index: Definition, Performance & Investing

The Russell 2000 is a stock market index that tracks the performance of 2,000 US small-cap stocksSmall Cap StockA small cap stock is a stock of a publicly traded company whose market capitalization ranges from $300 million to approximately $2 billion. from the Russell 3000 index. The Russell 2000 index is widely quoted as a benchmark for mutual fundsMutual FundsA mutual fund is a pool of money collected from many investors for the purpose of investing in stocks, bonds, or other securities. Mutual funds are owned by a group of investors and managed by professionals. Learn about the various types of fund, how they work, and benefits and tradeoffs of investing in them that consist primarily of small-cap stocks. It is also a benchmark for the performance of small-cap stocks overall. Created in 1984, the index is operated by the London-based FTSE Group.

Components of the Index

Currently, the Russell 2000 index consists of 2,040 companies. Despite the large number of constituents, the index represents only about 8% of the total market capitalizationMarket CapitalizationMarket Capitalization (Market Cap) is the most recent market value of a company’s outstanding shares. Market Cap is equal to the current share price multiplied by the number of shares outstanding. The investing community often uses the market capitalization value to rank companies of the Russell 3000 index.

Similar to many other major stock market indices, Russell 2000 is a capitalization-weighted index. As of September 2018, the average market capitalization of the index’s constituents is around $2.4 billion.

Although the index tracks the performance of small-cap stocks, it excludes penny stocks (stocks traded below $1 per share). In addition, it excludes non-US stocks, royalty trustsRoyalty TrustA royalty trust is a type of corporation that usually operates in the energy or resource mining industries and that has ownership rights to mineral deposits, and limited partnerships. New constituents are added to the index on a quarterly basis. Index components that no longer comply with the listing requirements are removed from the index annually.

The general consensus is that the Russell 2000 provides a better reflection of the US economy because its components are smaller companies with a focus on domestic businesses.

How to Invest in the Russell 2000?

The index can be an attractive investment opportunity for interested investors. Although direct investments in the index are not possible, there are several funds and ETFs that replicate the performance of the index. An investor can simply invest in the funds or ETFs and receive returns similar to the returns of the index. The most popular options include:

• iShares Russell 2000 ETF
• Vanguard Russell 2000 ETF

Both ETFs manage a large asset base ($25 billion and $1 billion, respectively) to replicate the performance of the index as closely as possible.

More Resources

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