For people who don’t follow the stock markets, the Russell 2000 might not sound like a major stock index. Most people are familiar with the S&P 500, the Dow Jones, or the NASDAQ. I’ll bet you that even some investors are not aware of what the Russell 2000 is. The Russell 2000 was founded back in 1984 by the Fran Russell company. The intention of this index is to track 2,000 of the top-performing small-cap stocks.
What Is the Russell 2000 Made up Of?
Interestingly, even though the Russell 2000 is more well known, this is a sub-index of the broader Russell 3000.
Now, I can see why you would assume that the Russell 3000 tracks the top 3000 small-cap stocks, but it doesn’t.
The Russell 3000 tracks the total US stock market and hotels the 3000 largest publicly traded companies.
Despite the Russell 3000’s portfolio, this index is rarely used as the S&P 500 is considered the benchmark index for US stocks. The S&P 500 is too large caps as the Russell 2000 is too small caps. The Russell 2000 is a market capitalization-weighted index and features stocks from the NYSE, NASDAQ, and OTC markets.
What Kind of Stocks Trade on the Russell 2000?
Since the index is only small-cap stocks, we get a wide variety of different companies. When an index is sorted by market caps, it doesn’t usually discriminate against industries or sectors.
Stocks in the Russell 2000 come from all different industries, with the smallest market caps at around $200 million and the largest at $10 billion. In the index, you’ll find anything from retail stocks to biotech to cannabis, and everything in between.
The stocks that trade on the Russell 2000 are not for the faint of heart. You’ll need a bit more risk tolerance and a go big or go home attitude to play these stocks.
With the added risk that is involved in investing in smaller and emerging companies, there also comes the potential for larger gains in the future. The Russell 2000 is for investors who like to get in on the ground floor before the entire market does.
Is There A Russell 2000 ETF?
Index funds are popular ways to invest in the stock market. This is especially true if you do not have time to track the markets all day.
We all know the big ones like SPY for the S&P 500, QQQ for the NASDAQ, and DIA for the Dow Jones.
But the Russell 2000 is an index too. Is there an ETF that tracks all 2,000 small-cap stocks in a single basket?
The two most well-known ETF providers are Vanguard and iShares from Blackrock. Both of these companies offer ETFs that track the Russell 2000.
Vanguard offers the Vanguard Russell 2000 Index Fund ETF which trades under the ticker symbol VTWO. iShares has the iShares Russell 2000 ETF which trades under the ticker symbol IWM.
There are plenty of other ETFs like those from SPDR and Invesco, but IWM and VTWO are the two most well-known funds.
How Has the Russell 2000 Performed?
While you might think that the larger gains from smaller stocks might lead to bigger returns from the index, you might be surprised. So far 2022 has been a struggle for most stocks.
The tech and growth stock correction sent the NASDAQ into a bear market territory and the S&P 500 into correction territory. Companies that are not yet profitable were punished during earnings season.
The Russell 2000 was definitely not spared from the market correction. In 2022, the index is down 9.7%, and over the past 52-weeks, it is down by 3.9%. Zooming out even more, the Russell 2000 has only returned 51.5% over the past five years, and 266.6% since its inception.
While not a terrible return over the long term, the Russell 2000 is often seen as a high growth index. These figures put it right in line with the average annual return of the S&P 500 which is all large cap stocks.
The Best Stocks in the Russell 2000
I’m not going to sugar-coat it, out of the 2000 stocks in the index there isn’t a lot you’re going to recognize. Scanning through the list there are a surprisingly large number of REITs or Real Estate Investment Trusts in the index.
There are also obscure companies in biopharmaceuticals, energy and commodities, and medical devices. Here’s a quick list of some of the better stocks in the Russell 2000 that you might know.
AMC (NYSE: AMC)
The Russell 2000 was reshuffled and at the time GME had a market cap of more than $10 billion.
This bumped the lead meme stock to the Russell 1000 index instead. But back to AMC.
We all know it as the largest movie theater chain in the world whose business was saved by a short squeeze.
Now I’m not exactly calling AMC a good investment. In fact, on the year it’s down more than 21% and more than 48% over the past six months.
But AMC and GameStop will always be unique and the leaders of the meme stock Reddit rebellion. Even if the stocks never do see the short squeeze everyone is waiting for, they will forever remind us of a time when retail investors stood up to Wall Street and won.
Macy’s (NYSE: M)
Macy’s is one of those foundational American companies. The retailer has been around since 1929 and has tip-toed the line of bankruptcy more than once. Macy’s still has well over 700 locations around the country and also has its subsidiary, Bloomingdale’s as well.
The company has been fading from relevance as eCommerce and fast fashion continue to dominate the retail industry. Macy’s is a timeless brand but I’m not sure I would recommend the stock as a great investment.
Asana (NYSE: ASAN)
An enterprise SaaS business that creates a lot of headlines, Asana is one of the preferred platforms for streamlining work efficiency. The company was founded by former co-founder and executive at Facebook, Dustin Moskovitz.
Asana is a company that hit mega-growth in 2021, particularly with the popularity of remote work during the pandemic. The company still anticipates annual revenue to grow by 50% over the next few years.
It is difficult to ignore the potential that Asana has, even if the stock has been beaten down in 2022. Shares are down nearly 70% from the all-time high price of $145 per share from late 2021.
Intellia Therapeutics (NASDAQ: NTLA)
Intellia Therapeutics is one of the leading companies in the CRISPR gene-editing industry. The company creates biopharmaceuticals and conducts research and studies with Regeneron and Novartis.
Intellia conducts a wide range of both in vivo and ex vivo treatments for diseases such as Amyloidosis, Hemophilia, and lung disease. Intellia recently received orphan drug designation for its treatment of Acute Myeloid Leukemia.
There are many out there who believe that gene editing and CRISPR are the future of medicine. Shares of NTLA are down by more than 40% so far in 2022.
Silvergate Capital (NYSE: SI)
Silvergate is an interesting Russell 2000 company to analyze. If you just look at its name, you would have no idea that it is one of the leading cryptocurrencies and fintech. Silvergate Capital was into cryptos before they were even cool.
Not only does the company offer its users a chance to invest in cryptos, but it also offers digital banking APIs that other sites and platforms can integrate directly into their coding.
Silvergate even offers its own crypto exchange network that has partnerships with Coinbase, FTX, and Kraken. Silvergate Capital might be a small bank in California, but it is bridging the gap between the crypto industry and everyday investors.
Is The Russell 2000 a Good Investment?
It’s difficult to say for sure, to be honest. Investors who like small-cap companies and even penny stocks swear by the high growth of the stocks. But looking at the numbers, the Russell 2000 hasn’t even outgained the S&P 500 on an average annual basis.
If that’s the case, personally I would rather park my money in the stability of large-cap companies. I have a higher risk tolerance, but if the returns are the same I’ll take the sure thing every time.
If you have the appetite for a bit more risk, I would look to invest in a Russell 2000 ETF. These will provide you stability with exposure to a large percentage of or the full 2000 companies.
I would much rather own a Russell 2000 ETF than any of the individual stocks listed above. The Russell 2000 is the best gauge of the small-cap market. If you are looking to add some small-cap diversification to your portfolio, then IWM or VTWO are excellent options for exposure to the Russell 2000 index.