What is the Russell 2000® Index?

Geri Terzo
Geri Terzo
Man climbing a rope
Man climbing a rope

Russell Investments is an investment firm based in the state of Washington in the United States. This company also has global offices across major cities, including Tokyo, London and Paris. Russell Investments is the name behind multiple indexes in the financial markets that are used by many large investors as a benchmark for performance. One of those indexes is the Russell 2000® Index, a U.S.-based index that is representative of some of the smallest companies that trade shares publicly in the stock market.

Professional money managers need to have some benchmark to compare with the performance of the investment portfolios that they build. Investors often want to know what type of profits or returns to expect, so when a money manager's investment product is pinned against an index, such as the Russell 2000® Index, investors know they can anticipate fund performance that is similar to that of the index. One way for investors to know what to expect is to review historical performance of the benchmark interest over the past three, five or 10 years, for instance.

Russell Investments has created an entire series of indexes. The Russell 2000® Index is designed as a reflection of trading activity in some of the smallest equities, or stocks, in the U.S. The size of stocks is indicated by something known as market capitalization, which is a measure of the size of a business. Market capitalization is based on an equation that is the value of a company's stock multiplied by the total number of stocks that the entity is permitted to trade in the financial markets, which is known as shares outstanding.

Russell 2000® stocks have among the smallest market capitalizations of all the equities that trade in the region, compared with other classifications known as mid-cap stocks and large cap stocks. Other indexes in the series include the Russell 2500™ Index, which is comprised of 2,500 of the middle-size securities in the U.S. market. Russell Investments must reconstitute the Russell 2000® Index every year in order to make sure that only the smallest stocks are included in the index. When companies grow to be larger than small cap status, they are replaced.

The number tied to the index also is noteworthy. For instance, as the name suggests, the Russell 2000® Index is a representation of 2,000 stocks. Another Russell index is known as the Russell 3000® Index, which represents 3,000 stocks.

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