investing

Stock indexes: The Russell 2000

4 stock indexes and their market clout
Russell 2000

The Russell 2000 is the most widely used benchmark for mutual funds that invest in small-cap companies. It comprises the smallest 2,000 stocks in the Russell 3000. Just like Standard & Poor's 500 index is the most commonly analyzed index for large-cap stocks, the Russell is the most studied stock index for small-cap stocks.

The Russell 2000 also has more diversity than its counterparts given the sheer number of stocks included in the index, but because the companies included in the index are small, Paul Larson, an equities strategist at Chicago-based Morningstar Inc., cautions it may not be the best index to measure overall stock market activity.

"You are measuring smaller companies in earlier lifecycles which means more economic sensitivity," Larson says.

Although all of the stock indexes have their pros and cons, industry watchers say the best strategy when trying to gauge the performance of the stock markets is to take all four indexes into consideration.

"If you look at all (the indexes) and based on the movement of the stocks, you can certainly observe them closely to form an opinion of how the overall stock market is doing," says Jerry Harris, president of Sterne Agee Asset Management in Birmingham, Ala.


 

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