What Is the Russell 2000 Index?

What Is the Russell 2000 Index?

Let me explain the Russell 2000 Index directly: it was launched in 1984 by the Frank Russell Company and is now managed by FTSE Russell. This index tracks the performance of 2,000 small-cap companies that are part of the broader Russell 3000 Index. As a key indicator of the U.S. economy, it gives you insights into the small-cap sector, which accounts for about 7% of the Russell 3000’s total market capitalization. If you're a mutual fund investor, you'll often favor this index because it provides a comprehensive view of market opportunities in small-caps without the biases of narrower measures.

Key Takeaways

You should know that the Russell 2000 is a major U.S. stock market index focusing on 2,000 smaller companies within the Russell 3000, giving you a full picture of the small-cap sector. Managed by FTSE Russell, it emphasizes small-cap stocks and represents roughly 7% of the Russell 3000's total market cap. As of March 31, 2024, its top three holdings were Super Micro Computer, Microstrategy, and Comfort Systems USA, with the index weighted most heavily in industrials, healthcare, and financials. The average market cap for companies in the index was $4.82 billion, and it first crossed the 1,000 mark in 2013; you can access it through ETFs like the iShares Russell 2000. Remember, the index gets rebalanced every June to ensure it accurately reflects the smallest U.S. companies' performance.

Comprehensive Overview of the Russell 2000 Index

I want to give you a thorough rundown: the Russell 2000 Index started in 1984 from the Frank Russell Company and is now under FTSE Russell, part of the London Stock Exchange Group. It includes about 2,000 small-cap companies and is the most quoted measure for small-cap to mid-cap stock performance. This index makes up around 7% of the Russell 3000's market capitalization and consists of the bottom two-thirds of the Russell 3000 by company size. The Russell 3000 itself covers movements in nearly 96% of all publicly traded U.S. stocks.

As of March 31, 2024, the top holdings were Super Micro Computer (SMCI), Microstrategy (MSTR), and Comfort Systems USA (FIX). The weighting leans heaviest toward industrials, then healthcare and financials. Mutual fund investors like you prefer the Russell 2000 because it shows broader market opportunities and avoids biases or stock-specific risks that might skew a fund manager's results. It's common for funds and ETFs to track or base themselves on this index.

Many investors benchmark small-cap mutual funds against the Russell 2000's movements, as it reflects opportunities across the entire small-cap subsection rather than narrower indices that could have distortions.

Essential Metrics to Evaluate the Russell 2000 Index

Here's what you need to evaluate: as of March 31, 2024, the average company value in the Russell 2000 was $4.82 billion, with a median market cap of $960 million. The largest stock by market cap was $58.43 billion. The index first went above 1,000 on May 20, 2013.

There are two sub-indexes for specific investor interests: the Russell 2000 Growth Index tracks companies with higher price-to-value ratios and forecasted growth, while the Russell 2000 Value Index focuses on those with lower price-to-book ratios and lower growth forecasts. Note that the smallest 1,000 companies in the Russell 2000 form the Russell 1000 Microcap Index, and the Russell 2000 itself is the 2,000 smallest from the Russell 3000.

Unique Attributes of the Russell 2000 Index

What sets it apart? The Russell 2000 determines weighting using market cap and a stock’s presence in other indexes, factoring in sale price and tradable shares. Unlike the S&P 500 or Dow Jones Industrial Average that focus on large-caps, this one targets small-caps. You can replicate its returns by building a similar portfolio, but it's simpler to use index futures, mutual funds, or ETFs like the highly traded iShares Russell 2000 (IWM).

Frequently Asked Questions

What does the Russell 2000 indicate? It's a measure of performance for 2,000 publicly traded small-cap U.S. companies. What's its methodology? It weighs U.S. small-cap stocks using a float-adjusted market capitalization approach. What's the highest it's ever been? The Russell 2000 hit a high of 2,458 on November 7, 2021.

The Bottom Line

To wrap this up, the Russell 2000 is an index of 2,000 small-cap companies launched in 1984, widely used as a benchmark for U.S. small-caps. It includes the smallest 2,000 from the Russell 3000, which covers about 98% of U.S. publicly traded stocks. The index is rebalanced every June, with companies added, deleted, or retained as needed.