The Russell 2000 Index is Wall Street’s premier small-cap equity benchmark. It was designed to track the performance of the roughly 2,000 stocks in the broader Russell 3000 Index with market capitalizations that range from about $300 million to about $2 billion. Interestingly, while the Russell 2000 includes 66% of the stocks in the Russell 3000, it covers only about 10% of the total market cap of its parent index. In short, there is a tremendous opportunity for broad diversification and capital appreciation in the Russell 2000.
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Administered by FTSE Russell, the Russell 2000 is a cap-weighted index. This means that companies with larger market caps have an outsized influence on performance, even as it is considered a small-cap benchmark. The index is rebalanced and reconstituted in June of each year. This ensures it reflects the most up-to-date small-cap universe possible without undue activity. Real-time adjustments to the Russell 2000 are generally only made in the case of mergers, acquisitions and other extraordinary events that cause companies to become too large too fast.
The bottom line on the Russell 2000 is that it’s a broadly recognized benchmark used to gauge the performance of smaller, domestic publicly traded companies. It’s an effective alternative and important complement to other indexes disproportionately made up of large-cap or mega-cap multinational stocks.
Many experts recommend a small-cap component to a balanced equity portfolio. Exchange-traded funds, or ETFs, that track the Russell 2000 are an excellent way to gain such exposure. Investors should be aware, however, that small caps are known for having higher volatility than their large-cap counterparts. This is because small-cap stocks can have lower trading volume and less liquidity, which can result in more dramatic market swings.
Investors who can accept the unique risks of investing in smaller companies but understand the value and growth potential in that asset class should review the following list. It includes five of Wall Street’s best Russell 2000 ETFs administered by some of the world’s best asset managers. The broad market has had a lackluster year-to-date performance, and the Russell 2000 has not been immune to the damage, but history tells us that recovery will eventually happen. When it does, the funds on this list are likely to participate in a meaningful way:
| ETF | Expense Ratio | Fund assets |
| iShares Russell 2000 ETF (ticker: IWM) | 0.19% | $60 billion |
| Vanguard Russell 2000 Index Fund ETF Shares (VTWO) | 0.07% | $11.3 billion |
| iShares Russell 2000 Growth ETF (IWO) | 0.24% | $10.8 billion |
| Vanguard Russell 2000 Value Index Fund ETF Shares (VTWV) | 0.10% | $800 million |
| Direxion Daily Small Cap Bull 3X Shares (TNA) | 1.03% | $1.7 billion |
iShares Russell 2000 ETF (IWM)
It’s appropriate that this list kicks off with the largest Russell 2000 ETF: IWM. This fund has net assets around $60 billion and can trade 30 million shares or more a day. That kind of volume guarantees liquidity and efficient pricing.
IWM is a low-cost fund with an expense ratio of 0.19%. Investors seeking a core small-cap holding would do well to consider this iShares fund. IWM provides broad, well-diversified exposure to smaller U.S. companies in every one of the 11 GICS stock market sectors.
At least 80% of IWM’s net assets will be strictly invested in the index. The remaining assets can be invested in small-cap stocks that generally represent the index and don’t detract from the fund’s goal of mirroring the performance of the benchmark.
The fund has a current yield of 1.2%.
Vanguard Russell 2000 Index Fund ETF Shares (VTWO)
Vanguard is known for high-quality, low-cost index funds. Investors looking to save a little on fees and expenses should consider VTWO. This fund’s expense ratio sits at 0.07%.
Vanguard employs a passively managed full-replication strategy in the management of this index fund. That ensures good diversification across industry sectors and among both growth and value investment styles. The fund is fully invested at all times; the managers do not maintain a cash position.
After accounting for the expense ratio, VTWO shareholders should not experience any significant tracking error.
The fund has net assets around $11 billion and a current yield of 1.4%.
iShares Russell 2000 Growth ETF (IWO)
The first two funds on today’s list mirrored the full Russell 2000 Index. The next two will highlight growth and value variations of that benchmark.
IWO tracks the Russell 2000 Growth Index. That index is, of course, a subset of the larger benchmark. The growth version screens all 2,000 of the Russell 2000 stocks for specific growth characteristics and pronounced revenue and earnings momentum.
This nearly $11 billion fund is suitable for investors who appreciate the potential of the Russell 2000 but want to make a strategic allocation to small-cap growth stocks in particular. IWO holds roughly 1,100 stocks in its portfolio.
The fund’s current yield is 0.9%. This is a little lower than the yield investors can expect from one of the broad Russell 2000 funds. IWO has an expense ratio of 0.24%.
Vanguard Russell 2000 Value Index Fund ETF Shares (VTWV)
The previous ETF on this list was for small-cap growth investors. The next is for those who want a pronounced value component in their Russell 2000-focused fund.
Value stocks are publicly traded companies that, according to Wall Street, are undervalued based on common financial metrics like price-to-earnings ratio, revenue and relative dividend yield. VTWV tracks the Russell 2000 Value Index, which specifically screens out and eliminates growth stocks that may be overvalued and have less room to run.
Typical of Vanguard index funds, this ETF has a very reasonable net expense ratio of 0.1%. Shareholders should not expect any appreciable tracking error. The fund has net assets around $800 million and a yield of 2.2%.
Value investing can be very rewarding over the long run, but investors should consider an investment in VTWV a little more aggressive than one in a broad Russell 2000 fund.
Direxion Daily Small Cap Bull 3X Shares (TNA)
Speaking of aggressive, today’s list wraps up with TNA, a very aggressive but potentially very profitable ETF.
TNA is a leveraged fund. This ETF owns derivative securities that leverage performance on the upside but, unfortunately, will do the same on the downside. TNA is not suitable for conservative investors who can’t stomach high volatility.
The objective of TNA is to deliver roughly three times the performance of the Russell 2000 on any given trading day. The fund managers use sophisticated trading strategies to reach that goal. They invest in component stocks of the index, plus a class of securities known as swap agreements in order to triple the daily performance of the benchmark.
The fund is designed to take advantage of short-term moves in the market. In fact, TNA is not managed to achieve its objective for any period greater than a single trading day, and so should ideally only be utilized by experienced investors seeking to make short-term trades.
TNA has a relatively high net expense ratio of 1.03%, and a dividend yield of 1.6%.
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5 Best Russell 2000 ETFs to Buy Now originally appeared on usnews.com
Update 04/10/25: This story was previously published at an earlier date and has been updated with new information.
