- The Russell 2000 is a stock market index made up of 2,000 small-cap US companies.
- It is a widely used performance benchmark for funds that invest in small-cap equities.
- The broad cross section of US-focused companies in the Russell 2000 also makes it a barometer for the economy.
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The Russell 2000 is a stock index that tracks the performance of 2,000 small-capitalization companies and often serves as a measure of the underlying health of the US economy. It comprises the smallest companies included in the broader Russell 3000 Index, and is one of the most widely used benchmarks for funds that invest in small-cap stocks.
The Russell 2000 accounts for 10% of the market capitalization of the Russell 3000, which represents around 97% of the investable US equity market. Both are operated by FTSE Russell.
How does the Russell 2000 Index work?
As with the Russell 3000 and many other equity indexes, the Russell 2000 is weighted by market-capitalization. This means that stocks with greater market value have a proportionally larger impact on the index’s overall level.
To be included in the index, companies must first be part of the Russell 3000, which comprises the 3,000 largest US-traded equities. FTSE Russell then picks the 2,000 smallest stocks from this index, removing such multibillion-dollar corporations as Microsoft, Apple, and Alphabet, leaving the companies that make up what could be considered the ‘core’ of the US economy.
“The Russell US indexes were created over 40 years ago and have been a key barometer of the US economy,” says Edward Moya, a senior market analyst at New York-based foreign-exchange broker OANDA. “Depending on which stage an economy is in, its expansion cycle might determine whether an investor wants to buy large-cap or small cap-stocks.
Some of the largest firms in the index include AMC, Asana, Crocs, and Macys, with market values in the $10 billion-$20 billion range as of November 2021. Conversely, some of the smallest members include biotechnology pharmaceutical companies such as Forte Biosciences and Hookipa Pharma, which had market values of less than $1 billion.