What Is the Russell 2000 Index?

The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. stocks. It is a market-cap weighted index.

Important

In March of 2020, FTSE Russell announced the 2020 schedule for the annual reconstitution, or rebalancing, of its Russell US Indexes. On June 15, 2020, the 鈥渓ock-down鈥 period began, when US index adds & delete lists are considered final. On June 26, the Russell Reconstitution becomes final after the close of the US equity markets. On June 29, equity markets open with the newly-reconstituted Russell US Indexes. The rebalance is expected to drive a record tilt towards larger companies over small, growth companies over value, and tech/healthcare over the other sectors.

Many investors compare small-cap聽mutual fund聽performance with the Russell 2000 index because it reflects the return opportunity presented by the entire聽sub-section of that market聽rather than opportunities offered by narrower indices, which may contain biases or more stock-specific risk that distort a聽fund manager鈥檚 performance.

Key Takeaways

  • The Russell 2000 index, created in 1984 by the Frank Russell Company, is a stock market index comprised of 2000 small-capitalization companies.
  • It is made up of the bottom two-thirds of the Russell 3000 index, a larger index of 3000 publicly traded companies that represents nearly 98 percent of the investable U.S. stock market.
  • The index is market-cap weighted and used as frequent benchmark for small-cap investors.

Understanding the Russell 2000 Index

The Russell 2000 index, created in 1984 by the Frank Russell Company, is a stock market index comprised of 2000 small-capitalization companies.锘 It is made up of the bottom two-thirds of the Russell 3000 index, a larger index of 3000 publicly traded companies that represents nearly 98 percent of the investable U.S. stock market.

Important

The Russell 2000 often serves as a benchmark for small-cap stocks in the United States.

The Russell 2000 index is a commonly used benchmark for聽mutual funds聽that identify themselves as "small-cap,"聽much like聽the聽S&P 500聽index is used to benchmark large capitalization stocks. (For related reading, see "S&P 500 vs. Russell 2000 ETF: What's the Difference?")

Mutual fund聽investors favor聽the Russell 2000 index because it reflects the investment聽opportunity presented by the entire聽market聽rather than opportunities offered by narrower indices, which may contain bias or more stock-specific risk that can distort a聽fund manager鈥檚 performance. Many mutual funds and聽ETFs聽are tied to聽or based on聽the Russell 2000.

It is also the most widely quoted measure of the overall performance of small-cap to mid-cap stocks. The index represents approximately 10 percent聽of the total聽Russell 3000聽market capitalization. As of聽June 30, 2020, the average value for a company on the Russell 2000 is $2.1 billion; the median market cap is $639 million.锘 The market cap of the largest company in the index is $5.8 billion as of July 2020.锘 It first traded above the 1,000 level on May 20, 2013.聽A similar聽small-cap index聽is聽the聽S&P SmallCap 600聽from聽Standard & Poor's, but it's not as widely referenced.

Many regard the Russell 2000 as聽an important bellwether聽of the American economy because it measures the performance of smaller, domestically focused businesses. The Russell 2000 index is investable by replicating the index using component shares or through聽index futures, mutual funds, and exchange trading funds, such as theRussell 2000 index ETF. There are an active聽listed options聽for IWM and Russell 2000 index futures as well.

The smallest 1000 companies in the Russell 2000 make up the Russell 1000 Microcap Index.

Russell 2000 Index vs.聽Other Market Indices

Unlike the Dow Jones Industrial Average, the聽Russell 2000 index is聽weighted聽by聽shares outstanding. This means that a member stock鈥檚 last聽sale聽price as well as the number of聽shares that can actually be traded (rather than the company鈥檚 full聽market capitalization) influence the index.

Other permutations of the Russell 2000 measure the performance of companies with special characteristics. For example, the Russell 2000 Growth Index measures the performance of Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.锘 The Russell 2000 Value Index measures the performance of Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

The other major difference between the Russell 2000 and other major indices is that it benchmarks small-cap stocks. The S&P 500 and Dow Jones index, for instance, track large-cap stocks.