The iShares Russell 2000 (NYSEARCA: IWM) is an exchange-traded fund (ETF) that seeks to generate investment results that correspond to the general price and yield of an index composed of U.S. small-cap companies known as the Russell 2000 Index. As of July 14, 2015, since its inception date on May 22, 2000, the iShares Russell 2000 ETF has achieved a total average annualized return of 8.02% by tracking the Russell 2000 Index.
The ETF's current top 10 holdings are 0.28% Anacor Pharmaceuticals Incorporated (ANAC), 0.25% Team Health Holdings Incorporated (TMH), 0.25% Tyler Technologies Incorporated (TYL), 0.24% Manhattan Associates Incorporated (MANH), 0.23% West Pharmaceutical Services Incorporated (WST), 0.23% Maximus Incorporated (MMS), 0.23% Cepheid (CPHD), 0.23% Investors Bancorp Incorporated (ISBC), 0.23% Neurocrine Biosciences Incorporated (NBIX) and 0.22% Ultragenyx Pharmaceutical Incorporated (RARE). The weights of these holdings in IWM aim to replicate the top holdings of the Russell 2000 Index.

The iShares Russell ETF is a well-diversified basket of small-cap stocks. IWM allocates its fund to multiple sectors, such as 24.52% to financials, 16.60% to information technology, 16.47% to health care, 14.72% to consumer discretionary, 12.71% to industrials, 3.91% to materials, 3.61% to energy, 3.34% to utilities, 3.07% to consumer staples and 0.82% to telecommunications. IWM also allocates a small portion, 0.24%, of its fund to cash and/or derivatives.

Characteristics

The iShares Russell 2000 ETF is structured as open-ended investment company, which is managed by BlackRock iShares and distributed by BlackRock Investments, LLC. As of July 13, 2015, IWM has 1,978 holdings, excluding cash and other derivatives, and $30.5 billion in net assets. The iShares Russell 2000 ETF is listed on the New York Stock Exchange Arca Exchange (NYSE Arca). IWM tracks the main benchmark for small-cap U.S. stocks and provides access to 2,000 small-cap stocks, which have market capitalizations less than $1 billion, in a single fund.
As of March 31, 2014, the iShares Russell 2000 ETF maintains a net expense ratio of 0.20%, which is relatively low in comparison to the category's average of 0.35%. This is due to the fund's low turnover ratio of 19%, which indicates BlackRock iShares passively manages the fund.

Suitability and Recommendations

Since the iShares Russell 2000 ETF tracks the Russell Index, investors are able to gain exposure to small public U.S. companies. However, investors should be wary of the risks associated with this fund, such as country risk, currency risk, economic risk and interest rate risk. Investors should particularly pay close attention to U.S. economic risk and financial stability. During times of economic instability, IWM can suffer greatly as less-established companies are likely to go out of business.

As of June 29, 2015, IWM has a trailing five-year alpha of -3.86, a beta of 1.26, a standard deviation of 16.76%, an average annualized return of 16.30% and a Sharpe ratio of 1.03. According to these modern portfolio theory (MPT) statistics, based on the fund's alpha, IWM underperformed the MSCI ACWI NR USD Index by 3.86%.

The fund's beta of 1.26 indicates it is theoretically 26% more volatile than the MSCI ACWI NR USD Index, also known as the standard index. The fund's trailing five-year Sharpe ratio of 1.03 indicates investors who are long the fund only have adequate returns for the amount of risk they take.
Based on the MPT statistics of the iShares Russell 2000 ETF, an investment in the iShares Russell 2000 ETF is suitable for investors who follow an aggressive growth investing strategy. The fund is recommended for investors who want exposure to small-cap U.S. equities and have a moderate-to-high risk tolerance. IWM is also suitable for investors seeking to diversify their U.S. stock allocations while maintaining long-term growth potential in their portfolios.

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