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Russell 2000

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Submitted By JBstudent
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Topic: Russell 2000
The Russell 2000 index measures the performance of the 2,000 smallest companies in the Russell 3000 index. To best understand what the Russell index is it is easiest to start off understanding what the Russell 3000 index is. It is the stock index consisting of the 3000 largest publicly listed U.S. companies, representing about 98% of the total capitalization of the entire U.S. stock market. This index is not quite as popular as the Dow Jones or the S&P 500 but still plays a large role in providing a snapshot of how well the U.S. economy is preforming by valuing demand interest in shares of the largest publically traded companies.
It all started in Tacoma Washington 1984 when this firm started a group of index to measure U.S market segments and to better track the performance of investment managers. This index was further divided into smaller sub segments such as the Russell 1000, Russell 2000, and the Russell 3000. The top 3,000 stocks (those of the 3,000 largest companies) make up the broad-market Russell 3000 Index. The top 1,000 of those companies make up the large-cap Russell 1000 Index, and the bottom 2,000 (the smallest companies) make up the small-cap Russell 2000 Index.

One question that does not usually get answered is what happens to the indices and how frequently they change. Russell changes its indices once each year in June, called "reconstitution". The reconstitution consists of going through the global list of investable stocks and assigning them to the appropriate indices. The Russell indexes do not immediately replace a company that combines with another firm or has its stock delisted. However, Russell adds Initial Public Offerings (IPOs) on a quarterly basis, capturing these stocks in a methodical way.
Most people ask why the Russell 2000 matters and it can be explained simply. It is one of the most widely used benchmarks for small cap stocks because it is much broader then other indices. Although it is very important to state that the index does not include micro cap and other small stocks. It represents only 8 percent of the total market capitalization of the Russell 3000 index. According to Wikipedia “the average market capitalization for a company in the index is around $1.26 billion. The median market cap is around $528 million. The market cap of the largest company in the index is around $5.0 billion.”
The Russell 2000 is just one small part of a group index that allows investors to track performance of distinct market segments worldwide. It is difficult to write about such a small part of a large group index. Its not only the Russell 2000 that is important but also the many indices as a whole which include but are not limited to the Russell 3000, Russell 2500, Russell 1000.
The success of the Russell indices here in the United States helped to introduce the Russell/Nomura equity indices for Japan to offer broad market style benchmarks for investors in that country. These pioneering, comprehensive, equity style indices offer free-float adjustment in the Japanese market. It contains the top 98% of all stocks listed on Japan’s stock exchanges and registered on Japan’s OTC market in terms of market capitalization. This portfolio of securities currently is made up of around 2000 of the largest Japan securities as determined by total market capitalization and measures the performance of the market. During the history the number of stocks has changed. In 1979 there were about 110 stocks, which made up 98% of the total market cap.
I think people should continue to use Russell indexes to track the performance of distinct market segments worldwide. Although more volatile then the S&P 500 I think provides better returns and potentially can help people finically. If I were a small cap mutual fund manager I would use the Russell index as my benchmark.

Websites: http://www.investopedia.com/search/default.aspx?q=russell+2000#axzz1fIaLDHu http://www.russell.com/indexes/data/default.asp http://en.wikipedia.org/wiki/Russell_2000 Books:
Title: Reconstitution Effects for the Russell 2000 Index
Author: Ernest Biktimirov
Publisher: Lambert Academic Publishing, 2010

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