What is the Russell 2000 Index?

Introduction

The Russell 2000 Index is one of the most widely followed "small cap" stock market indexes. To be eligible a stock must be:

There are now hundreds of companies that prepare stock market indexes, but FTSE/Russell is one of the four companies that dominate the index industry, along with MSCI, S&P, and NASDAQ. You can get a pretty good gauge of the index industry by looking at the number of exchange traded funds that are tracking indexes from particular index providers - see list of index providers for ETFs.

GISC sectors

Let's look at the current breakout of the Index by sector:

Russell 2000Total market
GISC Sector# of StocksMarket cap% # of StocksMarket cap%
Communication Services66$75,468,009,2403.4%170$4,709,402,688,72013.2%
Consumer Discretionary211$229,098,327,41510.4%455$4,146,740,309,96211.6%
Consumer Staples57$82,050,981,5363.7%160$2,410,922,329,7406.7%
Energy107$44,489,229,9872.0%215$824,979,003,1122.3%
Financials398$327,753,094,87214.8%909$4,053,562,764,83311.3%
Health Care427$536,375,441,73424.3%916$4,895,697,744,65113.7%
Industrials257$311,412,441,05514.1%519$2,841,933,958,4267.9%
Information Technology206$307,861,109,99213.9%558$8,786,590,942,17824.6%
Materials73$72,693,926,8723.3%177$844,325,466,1922.4%
Real Estate111$143,162,968,4376.5%221$1,214,803,020,8653.4%
Utilities36$81,227,928,3323.7%81$964,643,566,7712.7%
Total1,949$2,211,593,459,472100% 4,574$35,767,287,059,813100%

When we say "total market" in this article, we are talking about all common stocks, REITs and mortgage REITs of U.S. companies that trade on the U.S. stock market. So that excludes MLPs, preferred stocks, ADRs, and investment funds, and the common stock of non-U.S. companies that trade on the U.S. stock market. In terms of market capitalization, the Russell 2000 currently captures 6.2% of the total market.

The S&P Smallcap 600 Index is another popular small cap stock market index. Let's compare the S&P Smallcap 600 Index to the Russell 2000 Index:

S&P Smallcap 600Russell 2000
GISC Sector# of StocksMarket cap% # of StocksMarket cap%
Communication Services16$20,668,630,6300.9%66$75,468,009,2403.4%
Consumer Discretionary95$105,005,440,6004.7%211$229,098,327,41510.4%
Consumer Staples23$33,421,712,2321.5%57$82,050,981,5363.7%
Energy41$21,321,518,3591.0%107$44,489,229,9872.0%
Financials95$100,604,829,2064.5%398$327,753,094,87214.8%
Health Care73$94,007,985,3744.3%427$536,375,441,73424.3%
Industrials96$123,208,633,9585.6%257$311,412,441,05514.1%
Information Technology74$96,252,773,1014.4%206$307,861,109,99213.9%
Materials35$33,632,985,9951.5%73$72,693,926,8723.3%
Real Estate47$56,278,989,1172.5%111$143,162,968,4376.5%
Utilities6$14,430,870,6120.7%36$81,227,928,3323.7%
Total1,949$2,211,593,459,472100% 1,949$2,211,593,459,472100%

Size Categories

The Russell 2000 Index is considered to be a "small cap" or "small capitalization" stock index. But as explained in our article size categories, there is no standard definition of what makes up a "small cap" stock. Each of the major index providers (MSCI, S&P, NASDAQ, FTSE Russell) uses a different approach to build "small cap" indexes. On our website, any stock with a market capitalization between $300 million and $2 billion is considered to be a small cap stock. This is a just a widely used rule of thumb that we have also chosen to use. A "mid cap" stock under our definitions is a stock with a market capitalization between $2 billion and $10 billion.

Let's look at the stocks in the Russell 2000 Index based on the size categories we use:

S&P Smallcap 600Total market
Size Category# of StocksMarket cap% # of StocksMarket cap%
Large cap3$42,722,206,4661.9%530$30,861,334,758,87386.3%
Mid cap334$1,128,332,342,30251.0%807$3,611,206,655,35110.1%
Small cap1,047$945,770,676,06042.8%1,232$1,118,425,532,4153.1%
Micro cap564$94,768,234,6444.3%1,992$176,320,113,1740.5%
Unknown1$00.0%8$00.0%
Total1,949$2,211,593,459,472100% 4,574$35,767,287,059,813100%

Let's look at the stocks in the S&P Smallcap 600 Index based on the size categories we use compared to the Russell 2000 Index:

S&P Smallcap 600Russell 2000
Size Category# of StocksMarket cap% # of StocksMarket cap%
Mid cap97$264,976,248,25912.0%334$1,128,332,342,30251.0%
Small cap434$419,983,987,48919.0%1,047$945,770,676,06042.8%
Micro cap70$13,874,133,4360.6%564$94,768,234,6444.3%
Large cap0$00.0%3$42,722,206,4661.9%
Unknown0$00.0%1$00.0%
Total1,949$2,211,593,459,472100% 1,949$2,211,593,459,472100%

The average market cap of the S&P Smallcap 600 is $1,134,732,406, while the average market cap of the Russell 2000 is $1,134,732,406.

Dividend Yield

The Russell 2000 Index historically has had a dividend yield of around 1.2% to 1.4%. Generally, small cap stocks have a lower average dividend yield than large cap stocks.

Using the data in our database as of today, here are the current market capitalization weighted average dividend yields of the S&P Smallcap 600 compared to the Russell 1000 Index, the Russell 2000 Index and the stock market as a whole:

CategoryStock CountAverage Dividend Yield
S&P 5005051.86%
Russell 10009951.84%
S&P Smallcap 6006012.07%
Russell 20001,9491.53%
Total market4,5741.73%

Performance

Let's look at the performance of the Russell 2000 Index using IWM, the iShares Russell 2000 ETF. How does the performance of small cap stocks compare to the total stock market? Let's compare the performance of IJR to VTI, the Vanguard Total Stock Market ETF. VTI tracks the CRSP US Total Stock Market Index.

First, let's compare the market price of IWM to VTI:


Second, let's compare the total return of IWM to VTI:


Note that on our website, when you see a "-TR" symbol, such a symbol is a symbol we invented that references our calculations of the total return of an exchange traded fund (ETF). The total return symbol, or "-TR" symbol, includes the market price performance plus any dividends from that ETF reinvested.

The takeaway from the above charts is that over long periods of time, small and mid cap stocks tend to outperform large cap stocks. One way to visualize this is to look at a "ratio symbol" that shows the market price of IWM divided by the market price of SPY, the SPDR S&P 500 Index ETF:


Let's also look at the performance of the S&P Smallcap 600 Index compared to the Russell 2000 Index. Again, we will use ETFs to make the comparison. Let's compare the performance of IJR to IWM, the iShares Russell 2000 ETF. Let's start with the market price performance:


Second, let's compare the total return of IJR to IWM, using our computed "-TR" total return symbols:


The takeaway from the above charts is that over long periods of time, the S&P Smallcap 600 Index has outperformed the Russell 2000 Index. It is not entirely clear why that has happened, and whether it will continue to happen.

One way to visualize the outperformance of the S&P Smallcap 600 compared to the Russell 2000 is to look at ratio charts of IJR and IWM compared to SPY:


Volatility

Generally, small cap stocks tend to be more volatile than large cap stocks. Using the data in our database, every night, we calculate some key statistics on the securities in our database. Let's look at a few of these key statistics on the S&P 500, Russell 1000, Russell 2000, and the stock market as a whole, again using ETFs as a proxy:

CategoryStandard deviation (1)Sharpe ratio (2)SPY Sharpe ratio (3)Correlation to SPY (4)
SPY, the SPDR S&P 500 ETF0.150.700.701.00%
IWB, the Russell 1000 ETF0.150.480.461.00%
IJR, the S&P Smallcap 600 ETF0.190.580.460.96%
IWM, the Russell 2000 ETF0.200.450.460.96%
VTI, the Vanguard total market ETF0.150.560.531.00%

NOTES:

1) This is the ETF's standard deviation of returns during the ETF's lifetime. Standard deviation is one way to measure of the volatility of the returns on an investment - see what is standard deviation? A higher standard deviation indicates more volatility.

2) This is the ETF's Sharpe Ratio during its lifetime. The higher the Sharpe Ratio the better. The Sharpe Ratio is one way to measure whether the higher returns of a riskier, more volatile investment are worth it - see what is the Sharpe Ratio?

3) This is SPY's Sharpe Ratio during the same time frame of the ETF's lifetime

4) This is the ETF's correlation to SPY during its lifetime. Correlation measures how closely the market price of the ETF tracks that of the market price of SPY - see what is correlation?

The bottom line is that over long periods of time, small cap stocks tend to outperform large cap stocks, but they are more volatile. If you believe in the Sharpe Ratio, you would conclude that the extra volatility of small cap stocks is worth it. But every investor has to reach their own conclusion about what constitutes "acceptable risk".

ETFs that track

Because the Russell 2000 Index is so widely followed, there are a lot of exchange traded funds ("ETFs") that track the Russell 2000 Index:

SymbolDescriptionInception DateLeverage FactorMarket capActions
IWMiShares Russell 2000 ETF05/22/20001.00$37,717,029,000Analyze
RWMShort Russell 2000 ETF01/23/2007-1.00$471,586,526Analyze
SMLLDirexion Daily Small Cap Bull 2X Shares ETF07/29/20142.00$2,197,253Analyze
SRTYUltraPro Short Russell 2000 (3x) ETF02/09/2010-3.00$147,946,934Analyze
TNADirexion Daily Small Cap Bull (3x) ETF11/05/20083.00$866,806,527Analyze
TWMUltraShort (2x) Russell 2000 ETF01/23/2007-2.00$124,589,592Analyze
TZADirexion Daily Small Cap Bear (3x) ETF11/05/2008-3.00$585,160,628Analyze
URTYUltraPro Russell 2000 (3x) ETF02/09/20103.00$186,440,000Analyze
UWMProShares Ultra Russell 2000 ETF01/23/20072.00$133,644,000Analyze
VTWOVanguard Russell 2000 ETF09/20/20101.00$1,512,940,000Analyze


All data is a live query from our database. The wording was last updated: 02/21/2019.

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