The last index that we will look at in this series is the Russell 2000.
The Russell 2000 is an index managed by FTSE Russell, which consists of companies with smaller market capitalization and is thus considered a “small cap” index.
The term “small cap” is somewhat of a misnomer. Although there is no official definition, in the investment industry the term “small cap” generally refers to companies with market capitalizations of less than $2 billion. However, the Russell 2000 contains numerous companies with market capitalizations greater than $2 billion. For example, as of 11/30/2025, the largest company in the Russell 2000 had a market capitalization of approximately $30 billion, and the average market capitalization was approximately $4.6 billion. However, this is still significantly less than the market capitalizations of the largest companies in the S&P 500, the Dow Jones Industrial Average (DJIA), and the NASDAQ Composite. As of the end of 2025, the largest companies in those indices have market capitalizations in excess of $4 trillion.
Discussion of other major U.S. stock indices is covered in the rest of this series on our blog.
What the Russell 2000 Measures
With that clarification aside, the Russell 2000 is a measure of the stock performance of smaller companies. The Russell 2000 is a subset of another index, the Russell 3000. The Russell 2000 is composed of the roughly 2000 smallest companies, by market capitalization, in the Russell 3000. As of 11/30/2025, the Russell 2000 consisted of 1,951 stocks. Because the index represents smaller companies, many investors consider the Russell 2000 to be a better barometer of the broader economy than the S&P 500, the NASDAQ Composite, or the DJIA.
How the Russell 2000 Is Constructed
The components of the Russell 2000 are weighted according to float-adjusted market capitalization.
The term market capitalization refers to the aggregate value of a company’s outstanding shares. It is calculated by multiplying the share price by the total number of outstanding shares. The term float refers to the number of shares available for trading, also called “free float.” In other words, the float-adjustment removes restricted shares held by insiders.
History and Management of the Index
The Russell 2000 was launched in 1984 by the Frank Russell Company, a firm that began as a stock brokerage and consulting firm and then later entered into asset management. In 1999, the company was sold to Northwestern Mutual and then sold again in 2014 to the London Stock Exchange Group (LSEG). LSEG separated the index division from the asset management division. The company later sold the asset management business, Russell Investments, and merged the index business with another index provider, the Financial Times Stock Exchange (FTSE), thus forming FTSE Russell.
As with other indices, individuals and institutions can invest in the Russell 2000 via exchange traded funds (ETFs) and index mutual funds.
Price return vs. total return
A final note on indices in general. An index can be presented on a price return basis or a total return basis. A price return refers to the period-over-period change in the price of the index, ignoring dividends. A total return refers to both the period-over-period change in price and any dividends paid by the constituent securities over the same period. For example, for full-year 2025, the S&P 500 returned 16.39% on a price basis but 17.88% on a total return basis.
Summary
The Russell 2000 differs from other major U.S. stock indices not because it measures better or worse companies, but because it measures different ones. By focusing on smaller-cap firms, the index offers insight into segments of the market that are often more sensitive to domestic economic conditions, credit availability, and business cycles. Like all indices, the Russell 2000 is best understood not as a prediction tool, but as a lens — one that helps investors interpret market behavior when used alongside other benchmarks.
Key Takeaways
- The Russell 2000 tracks smaller-cap U.S. companies and is a subset of the Russell 3000.
- “Small cap” does not necessarily mean very small; many Russell 2000 companies have multi-billion-dollar market capitalization’s.
- The index is float-adjusted and weighted by market capitalization.
- Investors often view the Russell 2000 as more reflective of domestic economic conditions than large-cap indices.
- Understanding whether an index reflects price return or total return is essential when comparing performance.
For a brief visual walk through of the Russell 2000, we also cover the basics in a short video on our YouTube channel.
