What is the Russell 2500 Index?
The Russell 2500 is a market capitalization-weighted index that includes the 2,500 smallest companies covered by the broad spectrum Russell 3000 sphere of listed shares based in the United States. The 2,500 companies included in the index cover all small and mid capitalization market capital letters.
Key points to remember
- The Russell 2500 Index is a broad-based, market capitalization-weighted stock index comprised of 2,500 small and mid-cap stocks.
- The Russell 2500 consists of the smallest, by market capitalization, of the 3,000 stocks in the Russell 3000.
- Listed stocks are all US companies and strongly favor names from the financial services, producer durables and consumer discretionary sectors.
Understanding the Russell 2500 Index
The Russell 2500 Index is designed to be broad and unbiased in its criteria for inclusion, and it is recompiled annually to reflect the inevitable changes that occur as stock values rise and fall. The space covered by the mix of small and mid cap stocks is sometimes referred to as the “smid” cap; it can describe any company up to the $10 billion market cap range. These companies are generally considered to be more growth-oriented than large-cap stocks and may experience greater volatility than large-cap stocks over long-term periods.
To invest in the Russell 2500, choose an index fund that tracks the index, such as the iShares Russell Small/Mid-Cap Index Fund or the iShares Russell 2500 ETF.
How companies are chosen for inclusion in the Russell 2500
Launched on July 1, 1995, companies selected for inclusion in the Russell 2500 Index are chosen based on their float-adjusted market capitalization. On the last trading day of May each year, FSTE Russell ranks eligible companies based on their total market capitalization values, and on the last Friday of June each year the index is reconstituted. To qualify for inclusion in the Russell 2500 Index, a Security must trade on the NYSE, NYSE American, NASDAQ or ARCA exchanges. The index is monitored via ticker symbol R25I.
The Russell 2500 Index includes approximately 2,500 of the smallest stocks, based on a combination of their market capitalization and current index membership. The companies included in the index come mainly from financial services, manufacturing durable, and consumer discretionary industries. The constituent companies of the index and the sector composition of the index may change over time.
Investing in the Russell 2500 Index
Those wishing to invest in the overall performance of the Russell 2500 Index can invest in the iShares Russell Small/Mid-Cap Index Fund, which seeks to track the performance of the Russell 2500 Index.
BlackRock uses a representative sampling indexing strategy to manage the Fund. Representative sampling is an indexing strategy that seeks to invest in a representative sample of securities that mimics the investment profile of the underlying Russell 2500 Index. The fund generally invests at least 90% of its assets in the securities of the underlying index. Securities selected should have, in aggregate, investment characteristics (based on factors such as market capitalization and sector weightings), fundamental characteristics (such as yield variability and yield), and liquidity measures similar to those of the underlying index. The fund may or may not hold all of the securities of the underlying index.
Other Russell indices
FTSE Russell maintains several other popular indices, including the following:
- Russell 3000: The index tracks the performance of the 3,000 largest US-listed stocks, which represent approximately 98% of all US company equity securities.
- Russell 3000 Value: The Russell 3000 Value Index includes stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates.
- Growth Russell 3000: Includes companies showing signs of above-average growth. The index is used to provide a measure of the performance of growth stocks in the USA.
- Russell 2000: measuring the performance of approximately 2,000 smaller capitalization US companies in the Russell 3000 Index.
- Russell 1000: a subset of the Russell 3000 Index, represents the top 1000 companies by market capitalization in the United States.
- Russell Top 200: an index of the 200 largest companies in the Russell 3000 Index.
- Russell Top 50: Index of the 50 largest stocks in the Russell 3000 universe of US equities.
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