Russell 2000 Index

You may hear companies described as large-cap, mid-cap or small-cap, or even mega-cap or micro-cap. There are no fixed cutoff points for large-, mid- or small-cap companies. The delineation between each group can vary. A small-cap company might be valued at less than two billion dollars and large-cap companies might be over ten billion dollars, or the numbers might be twice those amounts.

Large-cap companies tend to be less vulnerable to the ups and downs of the market. Mid-cap companies are generally less susceptible to volatility than small-cap companies. Larger companies typically have greater financial reserves and therefore often can absorb losses more easily and bounce back more quickly from a bad year. At the same time, smaller companies might have greater potential for fast growth in economic boom times than larger companies. These generalizations are no guarantee that any particular large-cap company will weather a downturn well, or that any particular small-cap company will or won't thrive.

Market cap is the perceived value of a company because stock price is determined by investors. It isn't necessarily the actual value of a company and all of its parts.

Membership in the Russell 2000 Index is set by rank. The breakpoint between large cap and small cap increased from four point six billion dollars in 2025 to five point seven billion dollars in 2026. With data as of April 30, 2026, the largest company in the index has a market cap of nine point six billion dollars and the smallest company has a market cap of one hundred forty-six point four million dollars.

How Membership Is Ranked

Total market capitalization is determined by multiplying total outstanding shares by the market price as of the rank day. Companies are ranked by descending total market capitalization. The Russell 3000 Index consists of the companies ranked 1 through 3,000. The Russell 1000 Index consists of the companies ranked 1 through 1,000, and the Russell 2000 Index consists of the companies ranked 1,001 through 3,000. The Russell Midcap Index consists of the companies ranked 201 through 1,000, and the Russell Microcap Index consists of the companies ranked 2,001 through 4,000.

The broadest US index is the Russell 3000E Index, which contains the largest 4,000 US companies. The members of the Russell 3000E Index and its subsets are determined during semi-annual reconstitution. If an eligible company trades under multiple share classes, FTSE Russell will review each share class independently for US index inclusion.

Eligibility Rules of the Index

Eligible companies. All companies that are determined to be part of the US equity market are included in the Russell US indexes. In cases where the common stock share classes act independently of each other, with tracking stocks named in parentheses, each class is considered for inclusion separately. FTSE Russell screens all real estate investment trusts and publicly traded partnerships.

Ineligible securities. Preferred stock and convertible preferred stock are not eligible. Exchange-traded funds, mutual funds and tokenized shares are also excluded. Limited partnerships, royalty trusts and US limited liability companies are likewise excluded. Bulletin board, pink sheet or over the counter (OTC) traded securities are not eligible for inclusion.

Minimum price. A stock must have a close price at or above one dollar on its primary exchange on rank day to be considered eligible for inclusion. In order to reduce unnecessary turnover, if an existing index member's closing price is less than one dollar on rank day, it will be considered eligible if the average of the daily closing prices from its primary exchange during the thirty days prior to the rank date is equal to or greater than one dollar.

Minimum size. Companies with a total market capitalization less than thirty million dollars are not eligible for inclusion.

Minimum float. Companies with only a small portion of their shares available in the free float as defined by FTSE Russell are not eligible for the Russell indexes. Companies with less than an absolute 5 percent of shares available will be removed from eligibility.

Rank Day, Reconstitution and Banding

The rank day occurs on the last business day of April for the June reconstitution. Reconstitution occurs on the fourth Friday in June and the second Friday in December. At the June 2026 reconstitution, the rank day was April 30, 2026.

A band is placed around the market capitalization breakpoint. FTSE Russell calculates a range of five percentiles around the newly determined market cap breakpoints. For existing index members, a 5 percent band, based on total market cap percentiles, is placed around the breakpoint. Banding only applies to members of the Russell 3000. There will be no percentile banding at the bottom of the Russell 3000 Index.

Weighting and Float Adjustment

Most other widely known benchmark indexes, including the S&P 500, NASDAQ 100 and Russell 2000, use a company's market capitalization to determine how much weight that particular stock will have in the index. These indexes are often referred to as market-weighted indexes. Stocks in the Russell US indexes are weighted by their available, also called float-adjusted, market capitalization, which is calculated by multiplying the primary closing price by the available shares.

Other weighting methods exist. Some smart beta indexes give equal weighting to each of the stocks in the index. This typically results in smaller-cap companies being overweighted and larger-cap companies being underweighted relative to a market cap-weighted index. Each security in the Nasdaq Composite Index is weighted by its total listed market capitalization, with no float adjustment and no concentration caps.

The Russell US indexes will be reviewed quarterly for updates to shares outstanding and to free floats used within the index calculation.

Price Return and Total Return

The Russell 2000 Index is published in a price return version and a total return version. Index holdings are valued on a daily basis using closing prices. For a total return index, dividend amounts are handled on the ex-dates. Special cash dividends are non-recurring dividends outside of the normal dividends paid by the company.

The index value is the result of compounding daily (or monthly) return percentages. Returns between any two dates can then be derived by dividing the ending period index value by the beginning period index value. The end-of-day Russell 2000 has a base value of 100.00 as of December 31, 1978, and the real-time Russell 2000 has a base value of 135.00 as of December 31, 1986. Indexes are calculated five days a week, from Monday to Friday.

New Issues and Index Maintenance

IPOs, meaning initial public offerings, will be considered for index inclusion on a quarterly basis. The IPO rank date is the last business day of the first month of each quarter. In order to be added during a quarter outside of reconstitution, an IPO must meet all Russell US Index eligibility requirements. On the rank day for the quarterly additions, the IPO must also be priced and traded and rank larger in total market capitalization than the market-adjusted smallest company in the Russell 3000E Index as of the latest June reconstitution. IPO additions in June and December will be implemented in conjunction with the semi-annual rebalances.

FTSE Russell applies corporate actions to its indexes daily. Securities that leave the index for any reason, with mergers, acquisitions or other similar corporate activity named in parentheses, are not replaced. The number of securities in the indexes over the year will fluctuate according to corporate activity.

Within the Russell US and derived indices, a company emerging from bankruptcy protection or insolvency will be reconsidered for index inclusion at the next semi-annual reconstitution, with no twelve month exclusion.

Growth and Value Versions

Growth stocks are issued by companies that are expanding, sometimes quite quickly. Value stocks are investments selling at what seem to be low prices given their history and market share. Generally, growth stocks tend to be more volatile than value stocks.

Each company's style classification is set annually during the June reconstitution. The process for assigning growth and value weights is applied separately to the stocks in the Russell 1000 and Russell 2000 and to the smallest 1,000 stocks in the Russell Microcap Index. FTSE Russell uses three variables in the determination of growth and value. The method allows stocks to be represented as having both growth and value characteristics.

Liquidity and Volatility in Small-Cap Stocks

In 2013 trading data, small cap stocks with capitalizations below one billion dollars were much less liquid. Liquidity improved with market capitalization, and the smallest stocks, with capitalizations below one hundred million dollars, exhibited the least liquidity. Small cap stocks had larger quoted and effective spreads. On average, the smallest capitalization stocks had much less displayed size at all levels of the order book. Most stocks in the group below one hundred million dollars in capitalization traded less than twenty-five thousand dollars during a typical trading day in 2013. There was substantial variation in liquidity measures among individual stocks within a specific capitalization-price category.

Volatility can be an important measure of investment risk, both market-wide and for an individual stock. The more dramatic the swings, the higher the level of volatility and potential risk. Beta measures how a stock moves relative to the market movement, not the total volatility of a stock. Beta compares the movements of an individual security against those of a benchmark index, which is assigned a beta of 1. A stock that has a beta above 1.0 means it is more volatile than the overall market. A stock can have high volatility but a low beta if its movements don't correlate with market moves. Higher beta comes with higher risk and the potential for higher returns.

Using the Russell 2000 as a Benchmark

Benchmarks, such as the Dow Jones Industrial Average, S&P 500 and Russell 2000, are indexes or averages that track a particular stock market or market segment. Benchmarks play a valuable role for investors, providing a standard against which to measure an investment's performance.

It is important to choose the appropriate benchmark as a point of comparison. An appropriate benchmark to use when looking at a U.S. small-cap fund might be the Russell 2000, which measures the small-cap segment of U.S. equities. If you are evaluating a large-capitalization U.S. stock mutual fund, then the S&P 500, which tracks large U.S. stocks, could be a relevant benchmark. A fund's quarterly report will often tell you what specific index the fund is benchmarked against.

You will want to consider also how much risk your investment is assuming relative to the benchmark. Fund performance data often includes both returns and a standard deviation of returns. The returns of actively managed funds are reduced by the cost of hiring a professional fund manager. An actively managed fund has the potential to outperform the market or its chosen benchmark.

A good rule to follow is to do your comparisons over a long period of time, several years, as opposed to a single quarter or even a full year. Short-term comparisons can be skewed by one-time events that alter the performance of the benchmark or the investment under consideration. A fund's past performance is not as important as you might think because past performance does not predict future returns, but past performance can tell you how volatile or stable a fund has been over a period of time.

Under Item 4(b)(2)(iii) of Form N-1A, the table of average annual total returns also should show the returns of an appropriate broad-based securities market index.

History and the Small-Cap Premium

The Russell 2000 Index launched in 1984. The Russell US indexes were the first, in 1984, to adjust index constituent weights for freely floating shares.

Small-cap stocks have delivered a long-term return premium, although their performance is cyclical. Between 1927 and 2023, small US companies outperformed their larger counterparts by 2.85 percent a year, on average. There is no guarantee that a benchmark, or an investment you are evaluating, will perform similarly in the future.

A Fund That Tracks the Index

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities. The fund seeks to track the investment results of the Russell 2000 Index before fees and expenses of the fund. The fund uses a representative sampling indexing strategy, and the fund may or may not hold all of the components of the index. Under normal circumstances, the fund will not invest less than 80 percent of the value of its net assets, plus the amount of any borrowings for investment purposes, in components of its index. The index is sponsored by Russell, which is part of the London Stock Exchange Group and is independent of the fund and its investment adviser. The fund will concentrate its investments in a particular industry or group of industries to approximately the same extent that the index is concentrated. As of March 31, 2026, a significant portion of the index was represented by securities of companies in the financials, healthcare and industrials industries or sectors.

The principal risks of the fund include the following. Small-capitalization companies may be more volatile and less liquid than mid- and large-capitalization companies. Micro-capitalization companies are likely to be significantly less stable and more susceptible to adverse developments, and micro-capitalization stocks also may be thinly traded. The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the index, and tracking error risk may be heightened during times of increased market volatility or other unusual market conditions. The fund does not try to beat the index it tracks. Individual shares of the fund may only be bought and sold in the secondary market through a broker-dealer, and shares may trade at a price greater than or less than net asset value.

Index Funds and Exchange-Traded Funds

An index fund is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index. Index funds have generally followed a passive, rather than active, style of investing. An index fund may not perfectly track its index. An index fund may underperform its index because of fees and expenses, trading costs, and tracking error. An index fund will be subject to the same general risks as the securities in the index it tracks. The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are among the market indexes that index funds may seek to track.

An index fund is a mutual fund, exchange-traded fund or unit investment trust that follows a passive investment strategy designed to achieve approximately the same return as a particular index before fees.

You can buy and sell exchange-traded fund shares on a national stock exchange at the prevailing market price throughout the trading day. While an exchange-traded fund's market price generally stays close to the end-of-day net asset value, it may vary significantly.

Other Benchmarks in This Dictionary

The Dow Jones Industrial Average is an index of 30 blue chip stocks of US companies. The Nasdaq Composite Index includes all domestic and international common type stocks listed on the Nasdaq Stock Market.

The MSCI EAFE Index captures large and mid cap representation across 21 Developed Markets countries, excluding the US and Canada. The Bloomberg US Aggregate Bond Index measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

Exam Relevance

The Securities Industry Essentials examination content outline lists Benchmarks and indices as the sixth topic of Topic 3.1.2, Investment Returns, under 3.1, Trading, Settlement and Corporate Actions, in Section 3, Understanding Trading, Customer Accounts and Prohibited Activities. Topic 3.1.2 lists components of return, with interest, dividends, realized/unrealized gains and return on capital named in parentheses; different types of dividends, with cash and stock named in parentheses; dividend payment dates, with record date, ex-dividend date and payable date named in parentheses; concepts of measurement, with yield, yield to maturity, yield to call, total return and basis points named in parentheses; cost basis requirements; and benchmarks and indices. The outline does not name the Russell 2000 Index. Candidates should check the current outline before the examination.

Common Misunderstandings

The index contains exactly 2,000 stocks. The index includes approximately 2,000 of the smallest securities in the Russell 3000 Index. Securities that leave the index are not replaced, and the number of securities in the indexes over the year will fluctuate according to corporate activity.

The index contains the smallest stocks in the US market. The Russell 2000 Index consists of the companies ranked 1,001 through 3,000 by total market capitalization, and the Russell Microcap Index consists of the companies ranked 2,001 through 4,000.

Small-cap means a fixed dollar size. There are no fixed cutoff points for large-, mid- or small-cap companies, and the Russell 2000 Index sets membership by rank.

Every small-cap company is riskier or faster growing than every large-cap company. These generalizations are no guarantee that any particular large-cap company will weather a downturn well, or that any particular small-cap company will or won't thrive.

Market cap is the actual value of a company. Market cap is the perceived value of a company because stock price is determined by investors, and it isn't necessarily the actual value of a company and all of its parts.

A volatile stock always has a high beta. A stock can have high volatility but a low beta if its movements don't correlate with market moves.

The index is reconstituted only once a year. Reconstitution occurs on the fourth Friday in June and the second Friday in December, and IPOs are considered quarterly.

A company moves between the Russell 1000 and the Russell 2000 whenever its rank crosses the breakpoint. A band is placed around the market capitalization breakpoint, and banding only applies to members of the Russell 3000.

Any listed company can be in the index. Preferred stock, exchange-traded funds, mutual funds, limited partnerships and royalty trusts are not eligible, and companies with a total market capitalization less than thirty million dollars are not eligible for inclusion.

The index weights every stock equally. Stocks in the Russell US indexes are weighted by their available, also called float-adjusted, market capitalization.

The index is the same as the Nasdaq Composite Index. The Nasdaq Composite Index weights each security by its total listed market capitalization with no float adjustment, and stocks in the Russell US indexes are weighted by their available, also called float-adjusted, market capitalization.

A benchmark comparison predicts future results. There is no guarantee that a benchmark, or an investment you are evaluating, will perform similarly in the future.

A fund that tracks the index earns the index return. An index fund may underperform its index because of fees and expenses, trading costs, and tracking error.

A fund that tracks the index must hold every component. The iShares Russell 2000 ETF uses a representative sampling indexing strategy and may or may not hold all of the components of the index.

Key Points to Retain

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe.

The index is a subset of the Russell 3000 Index and includes approximately 2,000 of the smallest securities.

The Russell 2000 Index consists of the companies ranked 1,001 through 3,000 by descending total market capitalization.

There are no fixed cutoff points for large-, mid- or small-cap companies.

Securities must meet price, size and float requirements, and preferred stock, exchange-traded funds and mutual funds are excluded.

The rank day is the last business day of April, and reconstitution occurs in June and December.

A band is placed around the market capitalization breakpoint between the Russell 1000 and the Russell 2000.

Stocks in the Russell US indexes are weighted by their available, also called float-adjusted, market capitalization.

Beta compares the movements of an individual security against those of a benchmark index, which is assigned a beta of 1.

Benchmarks play a valuable role for investors, providing a standard against which to measure an investment's performance.

The Securities Industry Essentials examination content outline lists Benchmarks and indices in Topic 3.1.2, Investment Returns.