Catherine Yoshimoto
- Resilient small-cap growth: US small caps benefit from domestic focus, rate cut prospects, and modest valuations.
- Incubator for future giants: The Russell 2000 has launched leaders like Amazon, Nvidia, Netflix, and Costco.
- Valuation discount: Valuations sit ~30% below mega caps, potentially creating opportunities for long-term investors.
The Russell 2000® Index, launched in January 1984, was the first US small-cap equity index. It comprises approximately 2,000[Note1] of the smallest securities in the Russell 3000® index (see the chart) and represents about 5% of the total US equity market by capitalisation.
As of the end of August 2025, the Russell 2000 index was diversified across industries, with the largest ICB Industry weights in Industrials (19%), Financials (18%) and Health Care (15%).
The Russell US Indexes
Source: FTSE Russell. Data as of April 30, 2025. Russell Index constituents represent the preliminary reconstitution constituents as of rank day, April 30, 2025, which will be effective after market close on June 27, 2025. May not equal 100% due to rounding. Past performance is no guarantee of future returns. Please see the end for important legal disclosures.
The market capitalization breakpoints for the Russell Indexes are based on new additions as of 2025 reconstitution. The market capitalisation ranges used above are absolute breakpoints for new members and do not include capitalisation banding. Capitalization banding involves the implementation of a ±2.5% band around certain breakpoints. For further information, please refer to the Russell US Indexes construction and methodology document or contact FTSE Russell Client Service.
Although the Russell 2000 represents around 5% of the US equity market by aggregate market cap, at the end of 2024 approximately 16% of the $12 trillion in assets benchmarked to the Russell US Indexes as whole used it as a benchmark. This is testament to the Russell 2000’s popularity and relevance in institutional and retail investment portfolios.
Share of assets benchmarked to different Russell US indexes
Data as of December 31, 2024 as reported on May 15, 2025 by eVestment for active institutional funds, Morningstar for active retail mutual funds, insurance products, and ETFs, and passive assets directly collected by FTSE Russell. AUM includes blended benchmarks and excludes futures and options. AUM data does not include active and passive assets not reported to a 3rd party source or FTSE Russell. For funds where the AUM was not reported as of December 31, 2024, the previous period AUM was used as an estimate. No assurances are given by FTSE Russell as to the accuracy of the data.
Russell 1000 large cap series includes the Russell 1000 index; Russell Midcap series includes the Russell Midcap index and the Russell 2500 index; Russell 2000 Small Cap series includes the Russell 2000 index and the Russell Small Cap Completeness index; Russell 3000 Broad Cap series includes the Russell 3000 index and the Russell 3000E index; Russell Mega Cap series includes the Russell Top 200 index and the Russell Top 50 index; Other includes all other Russell US index products.
Momentum in the second half of 2025
The Russell 2000 reflects the resilience and innovation of the US small-cap segment and the index is often referenced as an indicator of US economic health. There has been a renewed wave of optimism regarding US small caps since April 2025, with the Russell 2000 approaching fresh highs by early September.
Russell 2000 index daily levels
This resurgence has been supported by:
- The Federal Reserve signaling potential rate cuts before year-end, which could benefit small caps disproportionately due to their relatively higher exposure to floating-rate debt.
- The Russell 2000’s domestic revenue orientation (with less than 20% of the index’s revenues coming from outside the US, compared to around 40% for the Russell 1000 index—see the chart), positioning the Russell 2000 to benefit from a US-led economic rebound.
Foreign revenue share for US large-caps and US small-caps
In addition, valuations for US small caps are currently more modest than those of large caps, with the Russell 2000 Index valuation about 30% below that of the mega cap Russell Top 200® Index based on I/B/E/S 1-year forecast price-to-earnings ratios. This valuation gap suggests a potential for mean reversion in the relative valuation of smaller US companies.
Price/Earnings - I/B/E/S 1-Year Forecast
Index evolution: IPOs and upward mobility
The Russell 2000 index continues to evolve, with 19 new companies added as a result of meeting eligibility requirements to be added as initial public offerings in the September 2025 quarterly review.
Number of Russell 3000E index additions by quarterly review date
Historically, the Russell 2000 index has served as a launchpad for future large-cap leaders, with high-profile stocks such as Nvidia, Amazon.com, Costco, Netflix, Adobe, Intuit, Super Micro Computer and Etsy joining the Russell 2000 before later graduating to the Russell 1000.
Dates of additions of selected stocks to the Russell US Indexes
| Company | IPO month | Added to Russell 3000 (A) | Added to S&P 500 (B) | Time Period from A to B | % Cumulative Total Return of the Stock from A to B | Russell 2000 Return from A to B |
|---|---|---|---|---|---|---|
| Costco | Dec-85 | March 1986 (R2); Jun 1988 (R1) | Oct-93 | 7 Years, 7 Months | 1.70% | 76.80% |
| Adobe | Aug-86 | Dec 1986 (R2); Dec 1987 (R1); Jun 2020 (R1) | May-97 | 10 years, 5 months | 1389% | 44.70% |
| Intuit | Mar-93 | Jun 1994 (R2); Jun 1995 (R1) | Dec-00 | 6 Years, 6 Months | 612% | 92.00% |
| Amazon.com | May-97 | Jun 1997 (R2); Jun 1998 (R1); | 05-Nov | 8 Years, 4 Months | 3043% | 89.80% |
| Nvidia | Jan-99 | Jun 1999 (R2); Jun 2000 (R1) | 01-Nov | 2 Years, 5 Months | 1043% | 3.90% |
| Netflix | 02-May | Jun 2002 (R2); Jun 2009 (R1) | 10-Dec | 8 Years, 6 Months | 2412% | 89.20% |
| Super Micro Computer | 07-Mar | Jun 2007 (R2); Jun 2024 (R1) | 24-Mar | 16 Years, 8 Months | 9990% | 220.90% |
| Etsy | 15-Apr | Jun 2015 (R2); Jun 2019 (R1) | 20-Sep | 5 Years, 3 Months | 766% | 29.40% |
Source: Russell 3000 additions are to the Russell 1000 (R1) and for the Russell 2000 (R2). The inception date of the Russell 3000 Index is January 1, 1984. All performance presented prior to the index inception date is back-tested performance. Past performance is no guarantee of future returns. See the end for important disclosures.
Why the Russell 2000 deserves a fresh look
In summary, the Russell 2000 Index reflects the resilience, innovation, and the domestic strength of US small-cap companies. It combines:
- Lower current valuations
- The potential for support from macroeconomic conditions
- A track record of incubating future large-cap leaders
If you are unfamiliar with this historic US equity index, it could be time for you to revisit the Russell 2000 as a strategic allocation in portfolios seeking growth, diversification and exposure to the next generation of market leaders.
Sources
[1] The index targets 2000 constituents but its actual number of members may vary as a result of index additions and deletions between review dates. | Back to Note 1
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