Russell 2000 - how to invest in small US companies [Guide]

Investors starting their careers on the capital market associate the American stock exchange mainly with indices S & P 500, Nasdaq xnumx and the Dow Jones Industrial Average (DIJA) 30. This is only a segment of the US market. The Wilshire 5000 index, grouping companies that are actively traded on US stock exchanges, grouped 2020 companies at the end of 3. So what are the benchmarks for medium and small companies? The index is the benchmark for medium-sized companies S & P 400, while for small companies, the most popular index is Russell 2000. And that's what this article will be about.

Russell 2000 - Small Company Index

Russell 2000 was established in 1984. The index was created by the Frank Russell Company (now part of FTSE Russell, which is part of the London Stock Exchange). The Russell 2000 index is an index that groups the "small" companies that make up the Russell 3000 index. Due to its "breadth", the index is a measure of the overall condition of the small company segment on the US stock exchange. For investors who only invest in small cap companies, the goal is to compare their investment performance to either the S&P 600 index or the Russell 2000 index.

The Russell 2000 is a highly diversified index that covers a great many sectors of the economy. Sometimes the opinion is that the Russell 2000 index is one of the barometers of the health of the US economy. This is due to the fact that the index includes a large number of small companies, which in many cases only operate on the American market. For this reason, they are more sensitive to the changing macroeconomic environment in the United States, much more than huge "Profitable aircraft carriers" like Coca-Cola or Apple Lossless Audio CODEC (ALAC),that generate income in many global markets.

Like many US indices, the Russell 2000 is based on "Free-float capitalisation". This means that the components of the US index are derived from market capitalization multiplied by the percentage of free float shares. Reclassification of the Russell 2000 index occurs once a year.

Russell 2000 Futures

You can also trade Russell 2000 futures. One index point is worth $ 50. At the current value of the index (2 points), this equates to the notional value of the futures contract at $ 220.

However, you do not need to have significant capital to invest in futures on this index. For less than two years, "smaller" contracts have been operating, which are called micro e-mini. The value of one point in this index is $ 5 (1/10 of the e-mini contract), which means that the notional value of the micro contract is $ 11.

Russell 2000 options

It is also possible to trade options on the Russell 2000 index. The contract size is the same as the futures contract. The options have an American style of execution. There is a wide variety of options on the market. From quarterly (March, June, September, December) options for the next three quarters, monthly (3 next months) and weekly (3 weeks) options are always available.

Index composition

According to data provided by the FTSE Russell agency, the Russell 2000 index has 2 components. At the end of February 028, the dividend yield of this index was 2021%. On February 1,09, 28, the largest Russell 2021 component had a capitalization of $ 2000 billion. The median value of companies in the index was $ 23,5 billion. Meanwhile, the average capitalization was $ 1,01 billion.

The index is very well diversified in terms of sectors of the economy. The largest shares are held by companies from the following industries:

• health protection - 21,5%,
• industry - 15,1%,
• finance - 14,8%,
• discretionary goods - 13,6%,
• IT - 13,4%.

The largest components of the index are the following companies:

• Penn National Gaming Inc.,
• Caesars Entertainment Inc.,
• Plug Power Inc.,
• Darling Ingredients Inc.,
• Novavax Inc ..

Below is a brief overview of several companies on the Russell 2000 index.

WD-40

The company is best known for its flagship product, which is the famous WD-40 preparation. WD stands for Water Displacement. So it is a water displacing agent. The range of applications for this product is very wide: from removing rust, through unlocking blocked screws, to removing chewing gum from carpets, and even cleaning heavily soiled ovens (!). The company's other products include 3-in-one, X-14 and Carpet Fresh.

texas roadhouse

The company was founded in 1993. It is a chain of restaurants that operate both in the United States and in foreign markets. Forma has the concepts of Bubba's 33 (31 restaurants), Jagger's (3 restaurants) and 600 Texas Roadhouse's (TR) restaurants. Restaurants (TR) serve, among others, burgers, steaks and grilled chicken. At the end of 2021, the company owned 537 restaurants and franchised 97 restaurants.

black line

It is a company associated with the new technology industry. Blackline offers solutions related to the automation of manual work related to accounting and finances. The company's products are used by over 3400 companies from 130 countries. Our clients include companies such as Coca-Cola, Hershey or Zendesk.

Q2 Holdings

The company operates in the software market. The company offers digitizing solutions for regional banks that have extensive experience in creating online banking. The company's main product is a banking platform for online banking called Q2. At the end of 2020, the company's offer was used by 450 customers who had 17,8 million users.

Helen of Troy

It is an American designer, manufacturer and retailer of home products. The company operates, among others, in such segments as household appliances, Beauty or Health & Home. Helen of Troy offers solutions for storing food and drinks, among others. It also has an offer of water filters (Pure) and Oxo (including kitchen tools, containers). Helen of Troy also produces several products under well-known brands such as Braun and Honeywell.

Upwork

It is a company that intends to digitize the freelance market. Upwork is one of the largest platforms of this type in the US market. It works by connecting principals (e.g. companies) and contractors (freelancers). The company boasts that thanks to the use of the platform, the client can finalize the project faster.

What might affect Russell 2000?

The condition of the American and world economy

The index includes both companies operating mainly on the American market (Q2 Holdings, Texas Roadhouse, Shake Shack) and international corporations whose products are sold mainly on foreign markets (WD-40). For this reason, the index is influenced by both the condition of the world economy and the condition of the national economy.

Financial results of companies

In the long term, the company's improving financial results are the most important. Increasing revenues, profits, and free cash flow (FCF) are solid arguments for long-term increases in stock prices. For this reason, it is worth following the financial results of companies included in the index. Especially those that have the greatest impact on changing the index value.

How You Can Invest in the Russell 2000 Index

One of the easiest ways to invest in the Russell 2000 Index is to buy a futures contract. However, due to the large face value (1 point is worth $ 10), many investors are forced to look for an alternative with a lower entry threshold. 

One is ETF with exposure to companies in the US Small Companies Index. A good example is iShares Russell 2000 ETF. As of March 26, 2021, the ETF's assets were in excess of $ 68,7 billion. TER (total expense ratio) is only 0,19% per annum. 

ETF brokers

Broker
End	Poland	Denmark	Great Britain / Cyprus
The amount of ETF on offer	approx. 400 - ETF approx. 170 - CFDs on ETFs	3000 - ETF 675 - ETF CFDs	397 - ETF CFDs
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 5
Platform	xStation	SaxoTrader Pro Saxo Trader Go	MetaTrader 5
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

Brokers offering CFDs on Russell 2000

Another possibility is to take advantage of the offer Index CFDs. These contracts are offered foreks brokersIncluding XTB, Plus 500 or Saxo Bank.

Broker
End	Poland	Denmark	Cyprus *
The symbol of Russell 2000	US2000	US2000	LIPS
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 100
Min. Lot value	price * 200 USD	b / d	-
Commission	-	-	-
Platform	xStation	SaxoTrader Pro Saxo Trader Go	Website
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

* PLUS500 CY offer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.