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Russell 2000 Index

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What Is It?

It's the mini-me index! The Russell 2000, one of 21 U.S. equity Russell indexes, is used to measure the performance of U.S. small company stocks ("small caps," in Street parlance). But these aren't the smallest of the small. They are actually the 2000 smallest companies in the Russell 3000 index, a broad based index that represents approximately 98% of the value of the investable U.S. equity market, but leaves out the tiny mini- and micro-cap stocks that make up the remaining 2%. The Russell 2000 makes up only about 8% of the total market capitalization of the Russell 3000.

Fun Fact

Okay, this fact isn't really that fun, but we did find out that all 21 Russell indexes are subsets of the company's flagship index, the Russell 3000. The Russell 2000 is the most widely quoted measure of the overall performance of the small- to mid-cap company shares.

Financial Statistics as of 08/29/01
Total Market Capitalization $975.3 billion
Average P/E N/A
Dividend Yield 1.34

Type of Companies

Small, but not tiny. According to the Russell website, the average Russell 2000 company's market capitalization is around $530 million; the median market cap is around $410 million. The market cap of the largest company in the index is around $1.4 billion. Compare that to one of the S&P 500's top holdings, General Electric, which has a market cap of more than $400 billion.

Number of Companies

2,000

Industry Composition* as of 6/23/00
  # of
cos.
% of index
Autos & Transportation 68 3.5%
Consumer Discretionary 367 18.6%
Consumer Staples 51 2.6%
Durables 153 7.8%
Energy 75 3.8%
Financials 386 19.6%
Healthcare 272 13.8%
Materials 171 8.7%
Other 15 0.8%
Technology 334 16.9%
Utilities 79 4.0%
*Data from Bloomberg

How It Is Measured

Weighted by market capitalization -- essentially the same as the S&P 500 and the Wilshire 5000.

Strengths

The Russell 2000 focuses on smaller capitalization companies and is quite diversified. This is the most quoted index that focuses on the smaller company portion of the economy.

Weaknesses

This index is quite volatile both in composition and in valuation. Small-cap companies do not tend to be the leaders in their respective industries.

Investing in the Russell 2000

The Russell 2000 serves as a good benchmark for small-cap investments, and index funds based on it have done quite well. But Fools should recognize that leading companies in major industries aren't represented here and should therefore proceed cautiously.

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