There are a number of reasons why an investor would want to own a Russell 2000 ETF. The Russell 2000 index (INDEX:^RUT) tracks a broad range of small-cap stocks, so if you want exposure to hundreds of small-cap stocks, the easiest to do that is with a Russell 2000 ETF.
The underlying index tends to be more volatile than other stock market indexes like the S&P 500 (INDEX:^GSPC), which tracks large-cap stocks. That means a Russell 2000 ETF is more suited to risk-tolerant investors, but with stocks still trading in a bear market, now could be an opportune moment to buy a Russell 2000 ETF as the index tends to outperform in bull markets.
In the article below, we’ll discuss the key components of the best ETFs that track the benchmark Russell 2000, including their assets under management, expense ratios, investment results, what makes them unique, and other attributes.
Top 5 Russell 2000 ETFs
| Name | Ticker | Issuer | Assets under management | Expense ratio |
|---|---|---|---|---|
| iShares Russell 2000 ETF | (NYSEMKT:IWM) | Blackrock | $67.42 billion | 0.19% |
| Vanguard Russell 2000 Index Fund | (NASDAQ:VTWO) | Vanguard | $8.3 billion | 0.1% |
| Vanguard Russell 2000 Growth Index Fund | (NASDAQ:VTWG) | Vanguard | $109 billion | 0.15% |
| Vanguard Russell 2000 Value Index | (NASDAQ:VTWV) | Vanguard | $1.01 billion | 0.15% |
| Direxion Daily Small Cap Bull 3x Shares | (NYSEMKT:TNA) | Direxion | $2.18 billion | 1.05% |
1. iShares Russell 2000 ETF
1. iShares Russell 2000 ETF
The iShares Russell 2000 ETF is the largest Russell 2000 ETF by far, with more than $55 billion in assets under management, and it also has a reasonably low expense ratio of 0.19%.
The index seeks to track the investment results of the Russell 2000 index. No single stock makes up more than 0.32% of the total ETF. Its top five holdings are Iridium Communications (IRDM 5.66%), Emcor (NASDAQ:EME), Crocs (CROX 1.53%), Inspire Medical Systems (INSP 2.79%), and Saia (SAIA -21.03%), which have individual weights between 0.3% and 0.32%.
That group of stocks shows how the ETF offers diversification, as those companies encompass technology, consumer goods, logistics, and healthcare.
The iShares Russell 2000 ETF also offers a dividend yield of 1.3%. The stocks it holds are also cheaper than the market average, as the fund trades at a price-to-earnings ratio of just 12.7.
Dividend Yield
2. Vanguard Russell 2000 ETF
2. Vanguard Russell 2000 ETF
The Vanguard Russell 2000 ETF is the best option if you’re looking for a low expense ratio, as it charges just 0.1% of assets invested to participate in the fund.
The ETF was started in 2010, and since then, its returns have mirrored that of the Russell 2000 index, up 10.43% annually since its inception.
Its top holdings are similar to the iShares Russell 2000 ETF, except its second-biggest holding is now Matador Resources (MTDR 0.05%), an energy company. Vanguard’s allocations are similar to the iShares Russell ETF, as its top holding, Iridium Communications, makes up just 0.29% of the total fund. Industrials are its biggest sector, with 17% of its holdings.
It also pays a similar dividend yield to the iShares Russell 2000 ETF at 1.22%
3. Vanguard Russell 2000 Growth ETF
3. Vanguard Russell 2000 Growth ETF
Some ETFs are broken down into value and growth funds to make it easier for investors to get exposure to one or the other, and that is what Vanguard has done here.
The Vanguard Russell 2000 Growth ETF invests in stocks held by the Russell 2000 Growth (INDEX:^RUO) and is more risky and volatile than the ETFs that track the Russell 2000.
It holds 1,109 stocks with a median market cap of $3.1 billion, and you might be surprised to learn that many of its top holdings are the same as the ETFs that track the broad Russell 2000. For instance, its five biggest holdings are Iridium Communications, Matador Resources, Crocs, Saia, and Inspire Medical. Those five stocks comprise between 0.53% and 0.56% of the fund.
The biggest sector in the Vanguard Russell 2000 Growth ETF is health care, which makes up 21.8% of the total fund, and it has a price-to-earnings (P/E) ratio of 14.6.
Exchange-Traded Fund (ETF)
4. Vanguard Russell 2000 Value ETF
4. Vanguard Russell 2000 Value ETF
As you might guess, the Vanguard Russell 2000 Value ETF is the counterpart to the growth ETF. Because it holds small-cap stocks, Vanguard describes it similarly to Russell 2000 Growth ETF, saying the value ETF offers high potential for investment growth but has more market volatility than funds that hold bonds.
Tracking the Russell 2000 Value (INDEX:^RUJ), the ETF holds 1,383 stocks, and its largest holdings present a different makeup than the growth ETF or the Russell 2000 ETFs. Its top five holdings are Agree Realty (ADC -0.48%), STAG Industrial (STAG -0.17%), Scientific Games (NASDAQ: LNW), South State Corp. (SSB -1.28%), and RBC Bearings (ROLL 0.32%). Each of those holdings makes up between 0.46% and 0.5% of the fund.
Financials are the biggest component of the Vanguard Russell 2000 Value ETF, making up 27.2% of the index. This makes sense considering that financials typically trade at low earnings multiples and aren’t known for growth. It also offers a dividend yield of 1.9%, showing it has more exposure to dividend stocks than the other ETFs on this list.
Year to date, the ETF has increased by 8% through Feb. 23 and trades at a P/E ratio of 9.9, making it cheaper than the broad-based Russell 2000 ETF.
5. Direxion Daily Small Cap Bull 3x Shares
5. Direxion Daily Small Cap Bull 3x Shares
Another option for investing in Russell 2000 ETFs is to choose a leveraged ETF like Direxion Daily Small Cap Bull 3x Shares.
Leveraged ETFs use options and other tactics to magnify the movements of the underlying index fund. Because of that, they are riskier than typical ETF and index funds but also offer the potential for outsized returns. Using those tools, the TNA ETF seeks to provide a return that is 300% of the return of the benchmark in a single day.
The ETFs five largest holdings are Halozyme Therapeutics (NASDAQ: HALO), Shockwave Medical (SWAV 0.31%), Inspire Medical Systems, Emcor Group, and Crocs, and the biggest sectors it holds are financials and health care at about 17% each.
If you’re bullish on the recovery and want to own small caps, a leveraged ETF like TNA is a good choice.
Why you should consider a Russell 2000 ETF
Why you should consider a Russell 2000 ETF
Exchange-traded funds offer the convenience of owning individual stocks without the need to choose individual stocks. They give investors a degree of diversification that would be hard to get by only buying individual stocks.
If you want to own small-cap stocks, buying shares of a Russell 2000 ETF is a great way to do so. There are thousands of small caps to choose from, far more than any investor can be expected to follow on their own. As you can see from the list above, there are also a variety of choices if you prefer growth or value, for example, and many of the ETFs offer minimal expense ratios.
Investing in a Russell 2000 ETF offers exposure to a broad range of small-cap stocks, giving you the benefit of diversification and the ability to own a class of stocks that is likely to outperform in the next bull market.
