Russell 2000 Index: definition, constituents and returns

The Russell 2000 Index is commonly used as a bellwether of the US economy as it measures a larger portion of public companies than other indices. Discover everything you need to know about the Russell 2000.

What is the Russell 2000 Index?

The Russell 2000 Index is the stock index that measures the performance of the 2000 smallest companies included in the Russell 3000 Index.

The Russell 3000 Index is seen as a more accurate representation of the US economy than larger-cap indices, such as the Nasdaq or Dow, due to its focus on smaller capitalisation companies over a narrower subsection of stocks. It tracks nearly 98% of all publicly-traded US stocks.

The Russell 2000 Index itself represents approximately 7% of the market capitalisation of the Russell 3000. It’s composed of the bottom two-thirds of the larger index.

The third index in the series is the Russell 1000, which is made up of the largest 1000 public US companies.

The Russell 2000 was launched by the London-based Frank Russell Company in 1984 and is now managed by FTSE Russell.

Russell 2000 methodology

The Russell 2000 is a market capitalisation-weighted index. This means that the companies on the index don't contribute equally to its performance. Companies with larger valuations have a greater impact than those with smaller values.

The Russell 2000 Index is assessed annually to ensure all its constituents are representative of small-cap stocks. When a company gets too large, moving up the rankings of the Russell 3000, it moves into the Russell 1000 index that measures the larger-cap stocks.

Why is the Russell 2000 Index popular?

The Russell 2000 is popular among day traders given that smaller companies’ share prices tend to be more volatile than their larger-cap counterparts. These dramatic price swings can create opportunities for short-term speculators.

If the US economic outlook is strong, historically the Russell 2000 Index should perform well, but when the economy is struggling, small-cap stocks are more susceptible to the downturn.

For example, the stocks on the Russell 2000 were impacted significantly more than their large-cap stock counterparts during the COVID-19 pandemic.

However, volatility also creates risk. So, any trader looking to buy or sell the Russell 2000 should have appropriate risk management measures in place, such as stop-loss orders.

How can you trade the Russell 2000 Index?

The Russell 2000 Index itself is nothing more than a number representing a group of stocks, but there are ways that traders and investors can replicate the returns. Including:

1. CFDs
2. ETFs

Russell 2000 Index CFDs

Index CFDs are derivatives that take their price from the value of the underlying index. When the Russell 2000 rises in value, our index CFD market (US Small Cap 2000) will rise in value by the same amount, and if the underlying index falls, our CFD market will fall.

CFDs are popular because they enable you to go long or short, speculating on whether the Russell 2000 will rise or fall. Your profit or loss will be determined by whether or not your prediction of the Russell 2000’s future movement is correct. For example, if you went long, and the price did increase, you’d make a profit for every point that it rises. But if it fell instead, you’d make a loss. The opposite would be true for going short: you’d profit for every point the Russell 2000 fell and make a loss if it rose in price.

CFDs are also leveraged which means you can open a position on the Russell 2000 for just a fraction of the full market value. This can increase both your profits and losses, making it important to manage your risk with stop-loss orders.

Russell 2000 ETF Index

Index ETFs (exchange traded funds) are funds that track an established stock index, usually either by investing in the same assets that the index holds or using derivatives that follow its price.  

There are several ETFs that track the Russell 2000 portfolio of stocks, including:

• The iShares Russell 2000 ETF - seeks to track the investment results of the small-cap index
• The iShares Russell 2000 Growth Index ETF – gives you exposure to small public US companies whose earnings are expected to grow at an above-average rate relative to the wider market
• The iShares Russell 2000 Value Index ETF – gives you exposure to small public US companies that are thought to be undervalued by the market relative to comparable companies
• ProShares Short Russell 2000 – seeks to replicate the daily investment results, before fees and expenses, that are the inverse (-1x) of the daily performance of the Russell 2000 Index

Russell 2000 Index annual returns

Data as of April 30, 2023.¹ Past performance is no guarantee of future results. Returns shown may reflect hypothetical historical performance.

Companies in Russell 2000 Index

There are 2000 companies in the Russell 2000. As of April 30, 2023, the top constituents in the Russell 2000 were:

1. Shockwave Medical - healthcare
2. Emcor Group Inc - industrials
3. Iridium Communications - telecommunications
4. Saia Inc - industrials
5. Apellis Pharmaceuticals - healthcare
6. Inspire Medical Systems - healthcare
7. Crocs Inc Consumer - discretionary
8. Texas Roadhouse Inc - consumer discretionary
9. Kinsale Capital Group - financials
10. Prometheus Biosciences – healthcare

The average value of companies on the Russell 2000 is $2.951 billion as of May 2023. The largest stock, Shockwave Medical, is worth $10.383 billion, while the smaller companies have market caps in the $200 million range.

Russell 2000 Index composition

The Russell 2000 Index is composed of companies across 11 different industries – the highest weighted are industrials, followed by healthcare and financials.¹

What’s the difference between the S&P 500 & Russell 2000?

While the Russell 2000 follows the smallest companies found in the Russell 3000, the S&P 500 follows the 500 largest companies in the US stock market. Although the two indices are used to represent the US economy, they follow two very different segments.

¹ FTSE Russell