Diversification is one of the most reliable safeguards against stomach-shaking market volatility. By including a wide range of investments in both the total portfolio and the equity portfolio, exposure to a particular risk is minimized because different types of instruments can respond differently to the same events.
But where there is a potential return, there is also a possible loss. Deciding how much personal wealth to put into shares and how to divide capital into different shares are important steps in risk management and may require collaboration with a financial planner.
Small-cap stocks can stimulate portfolio diversification and increase potential returns over time. For those looking to invest in US-listed small-caps iShares Russell 2000 ETF (NYSE 🙂 can be a strong candidate.
Although it is not possible to invest directly in an index, the IWM ETF follows the Russell 2000, allowing market participants to gain exposure to companies in the index. Before delving into the IWM ETF, we will take a closer look at the Russell indices, particularly the Russell 2000 index.
Russell Indices
A Russell index was created by FTSE Russell – a UK-based provider of a wide range of stock market indices and related data services. However, the Russell family of stock indices was created by the Frank Russell Company in 1984 to measure the performance of investment managers, and in 2014 the London Stock Exchange acquired Russell and created FTSE Russell.
A given Russell index tracks the performance of a broad asset class, or may target a narrower part of the market, such as technology stocks. There are several examples of the Russell index with a US stock focus, including the Russell 1000 ,, Russell 3000, Russell Microcap, and Russell Top 200.
According to FTSE Russell, over $ 15 trillion is currently benchmarked based on its indices, including about $ 9 trillion on the Russell US Equity indices. In general, domicile rules determine whether a company can be assigned to one country.
Russell's US indices serve as leading benchmarks for institutional investors. And the Russell 3000 index, which represents approximately 98% of the marketable US stock market, is one of the group's most notable examples, as it measures the performance of the 3,000 largest US companies by total market capitalization.
The Russell 3000 includes all sub-indices, but different investment management styles and market capitalizations categorize each subset.
The large-cap Russell 1000 index and the small-cap Russell 2000 index are considered two of the major US indices. The IWM ETF tracks the small-cap Russell 2000 index and is generally used by traders and investors as a proxy for the index.
While the definition of small caps may differ slightly between US brokers, it is generally defined as a company with a market capitalization of between $ 150 million and $ 2 billion. Small caps have smaller balances and relatively less cash than their large cap competitors.
That said, here's a closer look at IWM:
iShares Russell 2000 ETF
Current price: $ 148.03
52-week range: $ 95.69- $ 170.56
Dividend Yield: 1.37%
Expense Ratio: 0.19% per year, or $ 19 on an investment of $ 10,000.
With its 2000 companies, the iShares Russell 2000 ETF covers all industries. Late-stage biotech Novavax (NASDAQ :), home care provider LHC Group (NASDAQ :), shoe company Deckers Outdoor (NYSE :), global consumer product company Helen of Troy (NASDAQ 🙂 and BJ & # 39; s Wholesale Club (NYSE 🙂 are among the top with big names.
In the current year, the IWM has decreased by about 10%. In other words, small caps lagged large caps in recent weeks. In the long run, small cap stocks and small cap ETFs often outperform their large cap counterparts. But there are usually more. Many analysts can argue that valuations often have limited short-term predictive power. But in the long run, they could matter more by having a greater impact on returns while limiting downside risk. These two measures, as well as the 1.37% dividend yield, justify placing IWM on an investor's watchlist.
Bottom Line
For investors interested in diversifying their portfolios, the risk-return profile of small-cap ETFs may be appropriate. In addition to the IWM, there are also other small-cap equity ETFs, including:
SPDR S&P 600 Small Cap Growth ETF (NYSE 🙂
Invesco S&P SmallCap 600 Pure Growth ETF (NYSE 🙂
Vanguard Russell 2000 Growth ETF (NASDAQ 🙂
iShares Morningstar Small-Cap Growth ETF (NYSE 🙂
Invesco Russell 2000 Pure Growth ETF (NYSEARCA: PXSG)
Invesco S&P SmallCap Information Technology ETF (NASDAQ 🙂
We plan to cover these ETFs in the coming months.
