What is 'Russell 2000 Index'

The Russell 2000 index is an index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States.

BREAKING DOWN 'Russell 2000 Index'

The Russell 2000 index is a commonly used benchmark for mutual funds that identify themselves as "small-cap," much like the S&P 500 index is used to benchmark large capitalization stocks. Mutual fund investors favor the Russell 2000 index because it reflects the investment opportunity presented by the entire market rather than opportunities offered by narrower indices, which may contain bias or more stock-specific risk that can distort a fund manager’s performance. Many mutual funds and ETFs are tied to or based on 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 8 percent of the total Russell 3000 market capitalization. As of December 31, 2017, the average value for a company on the Russell 2000 is $2.4 billion; the median market cap is $861 million. The market cap of the largest company in the index is almost $9.3 billion. It first traded above the 1,000 level on May 20, 2013. A similar small-cap index is the S&P SmallCap 600 from Standard & Poor's, but it's not as widely referenced.

Many regard the Russell 2000 as an important bellwether 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 index futures, mutual funds, and exchange trading funds, such as the Russell 2000 index ETF.

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

There is an active listed options market for IWM and Russell 2000 futures as well.

Russell 2000 Index vs. Other Market Indices

Unlike the Dow Jones Industrial Average, the Russell 2000 index is weighted by shares outstanding. This means that a member stock’s last sale price as well as the number of sharesthat can actually be traded (rather than the company’s full 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. The Russell 2000 Value Index measures the performance of Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

 

 

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