There are a number of reasons an investor would want to own a Russell 2000 ETF. The Russell 2000 index tracks a broad range of small-cap stocks, so if you want exposure to hundreds of small-cap stocks, the easiest way is with a Russell 2000 ETF.
The underlying index tends to be more volatile than other stock market indexes, such as the S&P 500, which tracks large-cap stocks. So, a Russell 2000 ETF is more well suited to risk-tolerant investors. But with the possibility of interest rates coming down, now could be an opportune moment to buy a Russell 2000 ETF since the index tends to do well when interest rates are falling.
In the article below, we'll discuss the key components of the best exchange-traded funds (ETFs) that track the benchmark Russell 2000, including their assets under management, expense ratios, investment results, unique aspects, and other attributes.
Top 5 Russell 2000 ETFs
Name | Issuer | Assets Under Management | Expense Ratio |
|---|---|---|---|
iShares Russell 2000 ETF (NYSEMKT:IWM) | BlackRock | $62.1 billion | 0.19% |
Vanguard Russell 2000 ETF (NASDAQ:VTWO) | Vanguard | $12.4 billion | 0.07% |
Vanguard Russell 2000 Growth ETF (NASDAQ:VTWG) | Vanguard | $1.1 billion | 0.1% |
Vanguard Russell 2000 Value ETF (NASDAQ:VTWV) | Vanguard | $785.3 million | 0.1% |
Direxion Daily Small Cap Bull 3X Shares (NYSEMKT:TNA) | Direxion | $1.83 billion | 1.03% |
2. Vanguard Russell 2000 ETF
The Vanguard Russell 2000 ETF (VTWO +1.26%) is the best option if you're looking for a low expense ratio, charging only 0.1% of assets invested to participate in the fund. The ETF was started in 2010. Since then, its returns have mirrored those of the Russell 2000 index, up roughly 10% annually.
Its top holdings are similar to those of the iShares Russell 2000 ETF, with industrials as its biggest sector, accounting for 20% of its holdings. It also pays a slightly better dividend yield than the iShares Russell 2000 ETF, at 1.4%.
Exchange-Traded Fund (ETF)
5. Direxion Daily Small Cap Bull 3X Shares
Another option for investing in Russell 2000 ETFs is to choose a leveraged ETF, such as the Direxion Daily Small Cap Bull 3X Shares (TNA +3.58%). Leveraged ETFs use options and other tactics to magnify the movements of the underlying index fund.
That makes them riskier than typical ETFs and index funds but also offers the potential for outsize returns. Using those tools, the ETF seeks to provide a return that is 200% of the benchmark's return in a single day. The ETF's five largest holdings and their weightings are the same as those of the iShares Russell 2000 ETF.
If you're bullish on the recovery and want to own small caps, a leveraged one like the this Direxion ETF is a good choice. However, these leveraged ETFs aren't intended for long-term ownership as they decay over time. They are best used for short-term purposes.
Why you should consider a Russell 2000 ETF
Exchange-traded funds offer the convenience of an individual stock 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 could outperform in the bull market, especially if interest rates fall.
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Important factors to consider when selecting a Russell 2000 ETF
If you're looking to invest in a Russell 2000 ETF, there are a number of factors you should consider.
First, determine your goal. If you're looking for growth, you'll want to invest in the Vanguard Russell 2000 Growth ETF. If, on the other hand, you're partial to value stocks, you'll probably want the Vanguard Russell 2000 Value ETF. Whether you choose between growth and value will depend on your risk tolerance and other investing preferences.
If you want a balance between growth and value, you might consider an ETF like the iShares Russell 2000 or the Vanguard Russell 2000 ETF. On the other hand, if you're looking to make a short-term, leveraged bet, the Direxion Daily Small Cap Bull 3X Shares could be a good choice.
Before you choose your Russell 2000 ETF, it's worth asking why you want to invest in small-cap stocks. It could be because you are looking to diversify from the large-cap stocks found in the S&P 500, or you're anticipating that interest rates will fall and small-cap stocks will benefit. It also may be because small-cap stocks trade at a lower valuation.
Answering those questions will help determine which is the best Russell 2000 ETF for you.
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