What Is the Russell 2000 Index? How It Works And What Stocks It Tracks

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The Russell 2000 Index tracks the efficiency of roughly 2,000 of the smallest publicly traded corporations within the U.S. The Russell 2000 is definitely a subset of the Russell 3000 Index, which is far broader than the Russell 2000 and contains about 98 % of the investable U.S. inventory market.

The Russell 2000 is commonly checked out as a key financial indicator due to its give attention to small corporations that principally do enterprise within the U.S. It’s typically cited together with extra fashionable stock-market indexes such because the S&P 500, the Dow Jones Industrial Common and the Nasdaq Composite.

What corporations are within the Russell 2000?

The Russell 2000 is made up of small-capitalization corporations, which implies their market capitalizations, or the worth of all excellent shares, are lower than that of corporations included in better-known indexes, such because the S&P 500 or the Dow, that observe bigger corporations.

The median market cap of an organization within the Russell 2000 was $987 million on the finish of 2024, in accordance with FTSE Russell, which manages the index. That compares with a median market cap of $2.28 billion for the broader Russell 3000 Index.

Listed here are the highest 10 corporations that make up the Russell 2000 as of Dec. 31, 2024.

What does the Russell 2000 measure?

The Russell 2000 measures the inventory efficiency of the roughly 2,000 corporations which can be included within the index. It’s a market-capitalization weighted index, which signifies that the quantity that every firm accounts for within the index is decided by the dimensions of the corporate’s market cap, or the overall worth of its shares excellent. An organization’s weighting within the index rises and falls with the efficiency of its inventory.

The index is broadly utilized by energetic buyers within the small-cap house for benchmarking their efficiency. As an illustration, if you happen to put money into a small-cap mutual fund that’s actively managed, it would probably examine the efficiency of the fund to that of the Russell 2000 to find out whether or not the fund’s energetic technique added worth for its shareholders.

Are you able to put money into the Russell 2000?

Although you’ll be able to’t make investments immediately within the Russell 2000 Index, you’ll be able to put money into mutual funds and ETFs that observe the index. Happily these index funds are usually accessible for very low prices.

One fashionable ETF is the iShares Russell 2000 ETF (IWM), which provides buyers diversification throughout the small-cap universe for an annual charge of 0.19 %. One other ETF that tracks the index is the Vanguard Russell 2000 ETF (VTWO), which comes with an expense ratio of simply 0.10 %.

How does an organization get included within the Russell 2000?

To be included within the Russell 2000, an organization should first be within the Russell 3000, which incorporates about 98 % of the U.S. inventory market. FTSE Russell then ranks these corporations by their market cap, and the underside 2,000 make up the Russell 2000 Index. The highest 1,000 corporations make up the Russell 1000, which tracks large-cap corporations.

All year long as new corporations go public that qualify for the Russell 2000, they’re added to the index, typically pushing the variety of element companies above 2,000. Annually, the index goes by a course of often known as reconstitution, the place corporations are added or eliminated based mostly on their present market cap.

Is the Russell 2000 overvalued?

Questions across the valuation of the Russell 2000 or any index will at all times depend upon how the businesses that make up the index are valued. Theoretically, companies are definitely worth the current worth of their future money flows, or earnings. Nonetheless, at any cut-off date inventory costs could deviate dramatically from their true, or intrinsic values. There are alternative ways of wanting on the valuation for an index, however probably the most fashionable measures entails wanting on the price-earnings a number of.

Primarily based on earnings estimates for the following 12 months as of January 2025, the Russell 2000 traded for a price-earnings a number of of about 26, in accordance with Birinyi Associates. It is very important do not forget that this ratio relies on earnings estimates, so precise earnings could find yourself being greater or decrease.

Like most inventory indexes, the Russell 2000 carried out extraordinarily properly following the preliminary concern surrounding the worldwide pandemic, however it fell greater than 20 % in 2022 as rising rates of interest and a potential recession anxious buyers. Over the previous 12 months, the index has risen 17 % as of Feb. 3, 2025.

Russell 2000 FAQs

Backside line

The Russell 2000 Index measures the efficiency of about 2,000 of the smallest publicly traded corporations within the U.S. and is a well-liked option to observe the small-cap investing universe. Buyers trying to capitalize on its efficiency should purchase low-cost mutual funds and ETFs that observe the index.

— Bankrate’s Logan Jacoby contributed to an replace.