What Is the Russell 2500 Index?
The Russell 2500 Index is a broad index, featuring 2,500 stocks that cover the small- and mid-cap market capitalizations. The Russell 2500 is a market-cap-weighted index that includes the smallest 2,500 companies covered in the broad-based Russell 3000 universe of United States-based listed equities.
- The Russell 2500 Index is a broad, market-cap-weighted stock market index featuring 2,500 small-cap and mid-cap stocks.
- The Russell 2500 consists of the smallest, by market capitalization, of the 3000 stocks in the Russell 3000.
- The stocks listed are all U.S. companies and heavily favor names in the financial services, producer durables, and consumer discretionary sectors.
Understanding the Russell 2500 Index
The Russell 2500 Index is designed to be broad and unbiased in its inclusion criteria and is recompiled annually to account for the inevitable changes that occur as stocks rise and fall in value. The space covered by the blending of small- and mid-cap stocks are sometimes referred to as "smid" cap and can describe any company up to the $10 billion market cap range. These companies are generally considered to be more growth-oriented than large-cap stocks and may experience more volatility than the latter over long-term periods.
To invest in the Russel 2500, pick a mutual index fund that tracks the index, such as the iShares Russell Small/Mid-Cap Index Fund or the iShares Russell 2500 ETF.
How Companies are Chosen for Inclusion in the Russell 2500
Launched on July 1, 1995, companies selected for inclusion in the Russell 2500 Index are chosen based on float-adjusted market capitalization. On the last trading day of May of each year, FSTE Russell ranks eligible companies based on their total market capitalization values, and on the last Friday of June of each year, the index is reconstituted. To be eligible for inclusion in the Russell 2500 Index, a security must trade on the NYSE, NYSE MKT, NASDAQ, or ARCA exchanges. The index is monitored via the ticker symbol R25I.
The Russell 2500 Index comprises approximately 2500 of the smallest securities, based on a combination of their market cap and current index membership. Companies included in the index mostly come from financial services, producer durables, and consumer discretionary industries. The component companies and the industry composition of the index are subject to change over time.
Investing in the Russell 2500 Index
Those who wish to invest in the overall performance of the Russell 2500 Index may invest in the iShares Russell Small/Mid-Cap Index Fund, which seeks to track the performance of the Russell 2500 Index.
BlackRock uses a representative sampling indexing strategy to manage the Fund. “Representative sampling” is an indexing strategy that seeks to invest in a representative sample of securities that mimics the investment profile of the underlying Russell 2500 Index. The fund generally invests at least 90 percent of its assets in the securities of the underlying index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the underlying index. The fund may or may not hold all of the securities in the underlying index.
Other Russell Indices
FTSE Russell maintains several other popular indices including the following:
- Russell 3000: The index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities.
- Russell 3000 Value: Included in the Russell 3000 Value Index are stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates.
- Russell 3000 Growth: includes companies that display signs of above-average growth. The index is used to provide a gauge of the performance of growth stocks in the United States.
- Russell 2000: measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index.
- Russell 1000: a subset of the Russell 3000 Index, represents the 1000 top companies by market capitalization in the United States.
- Russell Top 200: an index of the largest 200 companies in the Russell 3000 index.
- Russell Top 50: index of the 50 largest stocks in the Russell 3000 universe of U.S.-based equities.