Understanding the concept of the Russell 2000 Index, its importance in the market, and how to invest in it.
What is the Russell 2000 Index?
The Russell 2000 Index is one of the most widely followed indices in the United States. This index tracks 2,000 small-cap publicly traded companies. While the S&P 500 Index is very well-known and tracks 500 of the largest publicly listed companies in the U.S., the Russell 2000 is a less common index that follows specific American companies with smaller market capitalizations.
Performance of the Russell 2000 Index
A look at the returns of the Russell 2000 Index compared to the Russell 1000 Index and the S&P 500 Index since 2000. The Russell 2000 is considered more volatile due to the ability of small-cap stocks to change rapidly. Variations in volatility can differ, but the beta of the iShares Russell 2000 ETF has remained close to 1.24 for several years (with a beta of 1.0 being the average market risk level).
Benefits and Risks of Investing in the Russell 2000 Index
Understand the benefits and risks associated with investing in the Russell 2000 Index. Investors looking for exposure to small-cap companies can invest in a mutual fund or an exchange-traded fund designed to track the index. There are many options available, such as the iShares Russell 2000 ETF and the Vanguard Russell 2000 ETF.
Limitations of the Russell 2000 Index
The Russell 2000 Index has limitations, as hundreds of small companies are excluded from it. The “small-cap companies” segment excluded from the Russell 2000 represents the smallest companies available in the market. If investors rely too heavily on the Russell 2000, they may lack diversity across industries and sectors. For example, the index tends to be heavily weighted toward financials, healthcare, technology, and industrials, while having limited exposure to companies in the communications and materials sectors.
Source: https://www.thebalancemoney.com/what-is-the-russell-2000-4773881
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