Russell 2000

Russell 2000 index trading via CFDs at AvaTrade

What is Russell 2000 Index

The Russell 2000 Index measures the performance of some 2000+ small-cap companies that are listed on the Russell 3000 Index. The Russell 2000 index was founded in 1984, and is associated with the OTC Markets Group, the NASDAQ, and the NYSE. At the time of writing, there were 1983 constituent components in the Russell 2000 Index. A free float capitalisation-weighted method is used for this index.

The Russell 2000 index is regarded as the benchmark index for small-cap stocks in the US. These are the bottom 2000 stocks selected from the constituents of Russell 3000 index, that lists an estimated 3000 of the largest stocks in the US.

The Russell 2000 Index is operated by FTSE Russell, of the London Stock Exchange (LSE) Group. While other indices such as the S&P 500 Index are the benchmark for large-US stocks, the Russell 2000 Index is the go-to option for small to mid-cap listed shares on the US market.

By December 31, 2017, the average market cap of companies on the Russell 2000 index was $2.4 billion, with a median market cap of $861 million. The first time the Russell 2000 index broke above 1000 was in May 2013.

For trading purposes, the following ticker is used to denote the Russell 2000 index: ^RUT. The Russell 2000 index reached an all-time high of 1610.71 (for closing) on January 23, 2018, and hit an intraday high of 1615.52 on January 24, 2018

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The Performance of the Russell 2000 Index over Time

In recent years, the Russell 2000 index has generated outsized gains, in line with the general performance of US bourses. The following annual returns have been reported:

  • 2012 – price return of 14.63% and a total return of 16.35%
  • 2013 – price return of 37.00% and a total return of 38.82%
  • 2014 – price return of 3.53% and a total return of 4.89%
  • 2015 – price return of -5.71% and a total return of -4.41%
  • 2016 – price return of 19.48% and a total return of 21.31%
  • 2017 – price return of 13.14% and a total return of 14.65%

The performance of the bottom 2000 stocks in the Russell 3000 index, i.e. the Russell 2000 index is in line with the overall performance of US equities. It has proven to be a highly lucrative investment opportunity for traders across the board.

Why Trade the Russell 2000 Index via CFDs

Russell 2000 Index Composition and Calculation

The Russell 2000 index is the biggest small-cap index for trading the bottom 2000 stocks of the Russell 3000 index. Recall that the Russell 3000 index lists the top performing 3000 listed companies in the US. It is rebalanced annually on the last trading day in June. Once this rebalancing takes place, market activity is heightened with a variety of small-cap funds and Russell-tracking funds.

By August 2012, the iShares Russell 2000 index was the second most actively traded ETF (exchange traded fund) in the world. The top 10 holdings of the Russell 2000 index include (as of January 31, 2018): Ralcorp Holdings Inc, Myriad Genetics Inc, Alexion Pharmaceuticals Inc, Waste Connections Inc, Piedmont Natural Gas Company, Inc, Realty Income Corporation and OSI.

The largest 3000 companies in the US market are automatically reconstituted to comprise the Russell 3000 index, and the Russell 2000 index contains the next largest 2000 companies of that index. The largest 1000 companies are listed in the Russell 1000 index. Segmentation is used for index categorisation.

Eligible securities for the Russell 2000 index are based on a number of defining characteristics, including:

  • Home country indicators only
  • Share descriptions must be compliant
  • Trading requirements i.e. US exchanges only
  • A minimum closing price of $1.00 on rank day in May
  • A minimum total market capitalisation of $30 million
  • A minimum available share/float requirement of 5% +
  • No royalty trusts, no US limited liability companies, no closed and investment companies
  • Convertible preferred stock, or preferred stock are excluded

*Note that there are currently 14 Russell US indices available to traders.

Top 10 Companies on the Russell 2000 Index

Company Industry Weight (%)
Cascadian Therapeutics Incorporated Biotech 0.007%
Eastman Kodak Company Technology 0.006%
Atara Biotherapeutics Biotech 0.021%
Iovance Biotherapeutics Biotech 0.020%
Jounce Therapeutics Health care 0.011%
RAIT Financial Trust Financial Services 0.003%
Novelion Therapautics Biopharmaceutical 0.005%
Novavax Biotech 0.016%
Madrigal Pharmaceuticals Biotech 0.009%
PTC Therapeutics Pharmaceutical 0.039%

*Note: The percentage weightings and the companies that comprise the top 10 performers are subject to daily fluctuation based on data provided by FTSE Russell.

The Top 5 Sectors of the Russell 2000 Index

Sector Weight (%)
Financial services 17.78%
Health care 15.35%
Producer durables 15.38%
Technology 16.64%
Consumer discretionary 12.51%

*Note: The percentage weighting of each of these top 5 sectors is subject to daily fluctuation, based on overall market activity.

The derivative product that is based on the Russell 2000 index is known as the iShares Russell 2000 Index Fund. It tracks the performance of the Russell 2000 index.

Factors Influencing the Overall Index Price of the Russell 2000

Russel 2000 is a broad market index with relatively even sectors representation. As such, macroeconomic variables such as interest rate fluctuations, inflation rate announcements, employment data, manufacturing PMI, nonfarm payrolls and other factors can influence the prices of individual stocks, of sectors, and various other components of the US financial markets.

A myriad of interrelated, unrelated or random factors drives the levels and weightings of individual components and sectors in the Russell 2000 index. Currency strength, particularly in relation with commodities, is a major determinant of demand, given that a strong USD lowers demand for gold, platinum, copper, iron ore and other commodities, and the reverse can have the opposite effect. The US dollar index is a barometer of dollar strength/weakness and can be used as an economic indicator to gauge the viability of going long or short on the Russell 2000.

A range of factors can determine the level of the Russell 2000, including changing market sentiment, speculative behaviour, market corrections, geopolitical tensions such as North Korea, the Middle East, China etc. These factors combine, sometimes in inexplicable ways, to raise the level of the Russell 2000 index, or to subdue it.

The Russell 2000 remains one of the most attractive small to medium indices for top-performing US companies. It acts as a barometer of the performance of the US markets, and traders can use derivative trading instruments such as CFDs to parallel the movements in the Russell 2000 index.

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