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 way 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 since the index tends to do well during bull markets.
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, what makes them unique, and other attributes.
Top 5 Russell 2000 ETFs
Top 5 Russell 2000 ETFs
| Name | Ticker | Issuer | Assets under management | Expense ratio |
|---|---|---|---|---|
| iShares Russell 2000 ETF | (NYSEMKT:IWM) | BlackRock | $60.9 billion | 0.19% |
| Vanguard Russell 2000 Index Fund | (NASDAQ:VTWO) | Vanguard | $9.3 billion | 0.1% |
| Vanguard Russell 2000 Growth Index Fund | (NASDAQ:VTWG) | Vanguard | $1.11 billion | 0.15% |
| Vanguard Russell 2000 Value Index | (NASDAQ:VTWV) | Vanguard | $854.6 million | 0.15% |
| Direxion Daily Small Cap Bull 3x Shares | (NYSEMKT:TNA) | Direxion | $1.86 billion | 1.08% |
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 2% of the total ETF. Its top five stock holdings are Super Micro Computer (SMCI -5.25%), MicroStrategy (MSTR -1.07%), Carvana (CVNA -2.35%), Comfort Systems USA (FIX -2.35%), and Onto Innovation (ONTO -2.64%), which have individual weights between 0.42% and 1.72% as of May 17.
That group of stocks shows how the ETF offers diversification by including companies focused on technology, consumer goods, and industrials.
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 16.3.
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 since it charges only 0.1% of assets invested to participate in the fund.
The ETF was started in 2010, and since then, its returns have mirrored those of the Russell 2000 index, up 10.43% annually.
Its top holdings are similar to those of the iShares Russell 2000 ETF, and industrials are its biggest sector, accounting for 19% of its holdings.
It also pays a similar dividend yield to the iShares Russell 2000 ETF at 1.3%.
3. Vanguard Russell 2000 Growth ETF
3. Vanguard Russell 2000 Growth ETF
Some ETFs are divided into value and growth funds to make it easier for investors to get exposure to one or the other, and Vanguard has done that 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 1,079 stocks with a median market cap of $3.5 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 Super Micro Computer, MicroStrategy, Comfort Systems USA, Weatherford International (NASDAQ:WFRB), and e.l.f. Beauty (ELF 2.47%). Those five stocks comprise between 0.7% and 3.5% of the fund.
The biggest sector in the Vanguard Russell 2000 Growth ETF is industrials, which makes up 23.1% of the total fund, and it has a price-to-earnings (P/E) ratio of 20.8.
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.
The Russell 2000 Value (INDEX:^RUJ) ETF holds 1,425 stocks, and its largest holdings present a different makeup than the growth ETF or the Russell 2000 ETFs. Its top five holdings are Chord Energy (CHRD 2.89%), Permian Resources (PR 1.11%), Murphy Oil (MUR 2.15%), Commercial Metals (CMC 1.77%), and Meritage Homes (MTH 0.55%). Each of those holdings makes up between 0.48% and 0.59% of the fund.
Financials are the biggest component of the Vanguard Russell 2000 Value ETF, making up 24.9% 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 2.25%, showing it has more exposure to dividend stocks than the other ETFs on this list.
The ETF trades at a price-to-earnings ratio of 12.2, 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, making them riskier than typical ETF and index funds but also offering the potential for outsized returns. Using those tools, the ETF seeks to provide a return that is 300% of the return of the benchmark in a single day.
The ETF's five largest holdings are the same as IWM, and so are the weightings.
If you’re bullish on the recovery and want to own small caps, a leveraged ETF like the Direxion Daily Small Cap Bull 3x Shares is a good choice, but leveraged ETFs aren't intended for long-term ownership.
Should you invest?
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.
FAQ
FAQs
What is the best ETF for the Russell 2000?
There are different ETF options depending on the types of stocks you're looking for, but the iShares Russell 2000 ETF is by far the largest Russell 2000 ETF.
What is the average return of the Russell 2000 ETF?
The Russell 2000 has had an 8.75% compound annual return since 2005.
Does Vanguard have a Russell 2000 ETF?
Yes, Vanguard has several Russell 2000 ETFs, including ones that focus on growth and value stocks, including the Vanguard Russell 2000 Growth Index Fund and Vanguard Russell 2000 Value Index. Its Vanguard Russell 2000 Index Fund ETF tracks the Russell 2000.
Is the Russell 2000 a good buy?
The Russell 2000 tends to be more volatile than the S&P 500, but its returns have been similar over a long period of time. The Russell 2000 tends to outperform in bull markets, which could happen again, especially if interest rates fall.
