Russell 2000 Index
Candlefocus EditorThe index was first launched in 1984 by the Russell Investments division of Frank Russell Company. The Russell family of indexes is currently managed by FTSE Russell, which is owned by the London Stock Exchange Group.
The Russell 2000 Index is often used as a benchmark for measuring the performance of small-cap mutual funds and ETFs. This is because the index provides broad coverage of the small-cap market, which many investors view as an advantage over narrower small-cap indexes that track a lesser number of stocks.
The Russell 2000 Index is maintained using a modified market capitalization-weighted methodology, meaning that stocks are weighted on the size of their float-adjusted market capitalization. The stocks in the index are sorted into two groups—the top 2,000 according to their float-adjusted market capitalization make up the index, while the portion of the universe below that is used to add stability and round out the index.
Investors can replicate the returns of the Russell 2000 Index by investing in an index-based mutual fund that tracks the index, or by exchange-traded funds (ETFs). Many ETFs and mutual funds constructed to mirror the Russell 2000 Index employ a “sampling” approach to measure the index. In this approach, the fund may not hold all of the stocks represented in the index, but rather a greatly reduced sample of those stocks.
Overall, the Russell 2000 Index is broadly used by investors as a benchmark for measuring the performance of small-cap stocks and allows investors to gain exposure to this asset class in an efficient and cost-effective manner.