Overview:
Started in 1984, the Russell 2000 Index is a subset of the larger Russell 3000.
It is one of the most widely used indexes by investors and is generally accepted
as the benchmark for small-cap firms. It includes many newer, smaller firms that
are not represented by the S&P 500 or other large indexes.
Composition:
The Russell 2000 Index contains the smallest 2000 stocks (based on market cap)
held by the Russell 3000. Though it contains twice as many stocks as the
large-cap Russell 1000, because of their small average size, its component
stocks account for just 7% of the value of all U.S. equities. The index is
computed based on a market cap weighting, meaning that the largest stocks have
the greatest influence on the index's returns. The Russell 200 Index is more
evenly weighted than most, as the top 10 holdings represent less than 2% of the
index's overall value. The average firm carries a market cap of just under $1
billion, and most stocks within the index range in size from roughly $100
million to $2 billion.
| Company |
Symbol |
%
of Index |
| Tesoro Petro. |
TSO |
0.2% |
| Calpine |
CPN |
0.2% |
| Techne |
TECH |
0.2% |
| Cytec
Ind. |
CYT |
0.2% |
| Park National |
PRK |
0.2% |
| Energen |
EGN |
0.2% |
| Bancorpsouth |
BXS |
0.2% |
| Idex
Corp. |
IEX |
0.2% |
| Pediatrix Medical |
PDX |
0.2% |
| Hyperion
Solutions |
HYSL |
0.2% |
|
| Sector |
%
of Index |
| Financial Services |
21.4% |
| Industrial
Materials |
14.9% |
| Healthcare |
12.4% |
| Business
Services |
10.6% |
| Hardware |
9.9% |
| Consumer
Services |
9.0% |
| Consumer Goods |
5.3% |
| Software |
4.9% |
| Energy |
4.8% |
| Utilities |
3.0% |
|
Positives:
The Russell 2000 is the most widely recognized index for small-cap stocks.
Though the index contains smaller, more volatile companies, the Russell 2000 has
handily outperformed its large-cap peers since its inception. Because of its
size and popularity, liquidity and trading costs are not a large concern--many
investors actively trade this index.
Drawbacks:
Though it contains a larger number of stocks when compared to the S&P
SmallCap 600 Index, many investors are beginning to question whether the Russell
2000 is really a better gauge of the universe of small-cap stocks. The smaller
S&P 600 quietly gained a large following thanks in large part to its
historical outperformance relative to the Russell 2000.
How can I trade/invest in this index?
Investors can invest in the Russell 2000 Index via a multitude of different
futures, options, mutual fund and ETFs. Our favorite choice is the iShares
Russell 2000 (symbol IWM). This ETF is not only one of the market's most
actively traded funds, but it also carries a very low 0.20% expense ratio.
Trading costs are generally higher for small-cap stocks, so IWM provides an
excellent way to invest in smaller stocks without paying a huge premium.
Additional Information:
Russell 2000 Index Fact Sheet
iShares Russell 2000 Index Fund (IWM)
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delivered total returns of +297.3% since 2003, and
it ranks in the top 10% of its category over the past decade.
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