Russell 2000 Index Definition and Key Metrics

What Is the Russell 2000 Index?

The Russell 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. The Russell 2000 is managed by London's FTSE Russell Group, widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies in the U.S. market.

Understanding the Russell 2000 Index

The Russell 2000 Index was launched in 1984 by the Frank Russell Company. It is a U.S. index managed by FTSE Russell, a subsidiary of the London Stock Exchange (LSE) Group. The index is composed of about 2,000 small-cap companies.

The index is the most widely quoted measure of the overall performance of small-cap to mid-cap stocks. It represents approximately 7% of the total Russell 3000 market capitalization and is made up of the bottom two-thirds in terms of company size of the Russell 3000 index. The larger index reflects the movements of nearly 96% of all publicly traded U.S. stocks.

As of FTSE Russel's index factsheet dated March 31, 2024, the index's top three holdings were Super Micro Computer (SMCI), Microstrategy (MSTR), and Comfort Systems USA (FIX). It is highest weighted in industrials, followed by healthcare, then financials. The table below highlights a breakdown of the index by industry.

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. It's no surprise that many funds and exchange-traded funds (ETFs) mirror or are based on the Russell 2000.

Key Metrics of the Russell 2000 Index

As of March 31, 2024, the average value for a company on the Russell 2000 was $4.82 billion, while the median market cap was $960 million. The largest stock by market cap on the index was $58.43 billion. The Russell 2000 first traded above 1,000 on May 20, 2013.

Two sub-indexes of the Russell 2000 have been created to track the performance of companies within it that contain unique characteristics that are desired by certain types of investors:

• The Russell 2000 Growth Index measures the performance of Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values.
• The Russell 2000 Value Index measures the performance of Russell 2000 companies with lower price-to-book (P/B) ratios and lower forecasted growth values.

Special Considerations

The Russell 2000 Index is weighted using a combination of market cap and the other indexes a stock is listed on. This means that a member stock's last sale price, the number of shares that can be traded, and whether it is on other indexes influence its listing on the index.

The other big difference between the Russell 2000 and other major indices is that it tracks small-cap stocks. The S&P 500 and Dow Jones Industrial Average (DJIA) indices, on the other hand, track large-cap stocks.

The index's returns can be replicated by investors who take the trouble to create a sizeable and complex portfolio that mirrors the index. However, there are far easier ways to get the same returns. For instance, investors can use index futures or index-based mutual funds that track the Russell 2000. The most popular option is an ETF. The most heavily traded of the ETFs is the iShares Russell 2000 index ETF (IWM).

The Bottom Line

The Russell 2000 is an index of 2,000 small-cap companies that was first launched in 1984. It is widely used as a benchmark for U.S. small-cap stocks. The index comprises 2,000 of the smallest companies in the Russell 3000, which itself covers roughly 98% of the stocks publicly traded in the U.S. The Russell 2000 is rebalanced every June, and companies are added, deleted, or kept.