The Russell 2000 offers a comprehensive snapshot of the small-cap market — stocks that belong to companies with a market capitalization between USD $300 million and USD $2 billion. These stocks can outperform blue-chips, but come with some risk.
The Russell 2000 is a market-cap weighted index that tracks 2,000 of the smallest-cap companies in the US. Companies within the Russell 2000 are pulled from its parent index: the Russell 3000. It helps small-cap investors gauge the US stock market.
The Russell 2000 was founded in 1984 by the Frank Russell Company, a subsidiary of the London Stock Exchange Group. Today, it’s managed by the FTSE Russell, a British data and analytics firm that maintains stock market indices.
Because the Russell 2000 is just an index of stocks, you can’t invest in it directly. However, you can invest in individual stocks tracked by the index or buy into ETFs that track the index.
Here’s a quick look at the investment process:
The Russell 2000 isn’t a blue chip index — it tracks 2,000 small-cap companies to offer direct insight into smaller businesses across the US. While it lacks the easily recognizable big wigs in tech and finance, these stocks present a unique opportunity for investors:
Major exchange-traded funds (ETFs) that track the Russell 2000 include:
The graph below tracks how the Russell 2000 has performed historically (figures are stated in US dollars). Toggle between the options on the graph to see the data for the past month, 3 months, year or 5 years.
Investing in index funds offers a valuable diversification opportunity to a portfolio with limited assets. And for those looking to support small businesses, ETFs that track the Russell 2000 give investors a way to allocate assets to small-cap US stocks.
Investment experts suggest small-cap stocks frequently outperform large-cap stocks because of their growth potential. While most large-cap companies have already experienced the bulk of their growth, many small-cap companies are looking to expand.
Small-cap stocks are a double-edged sword. While their potential for growth makes them an appealing asset, they also tend to be more volatile than well-established large-cap stocks. There’s an opportunity for profit when supporting small-cap businesses, but these stocks can also be risky.
The best way to build a well-balanced portfolio is to invest in stocks and funds from multiple indices, both domestic and international.
If you plan to invest in an ETF that tracks the Russell 2000, you’ll need to open a brokerage account. Compare your options to find the best fit.
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The Russell 2000 can help investors gauge the market for small domestic stocks. But while the companies it tracks are well-positioned for growth, their stocks tend to be more volatile than better-established businesses.
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