Playing the small-cap market is a recipe for higher risk, higher returns than investing in blue-chips or other large-cap stocks. When times are good, they’re usually really good. When times are bad, they’re usually really bad.
However, for those willing to accept more risk, the opportunity for greater returns is there. A lot was said about the 30-percent gain for the S&P 500 during the bull market of 2013, but that same time period saw the Russell 2000 gain 40 percent.
So, for those looking to invest in the small-cap market, an ETF with broad exposure to a large basket of small-cap stocks can be an excellent way to assume the risk of the small-cap market without the extreme risk of buying stocks in individual small-cap companies. And for that purpose, one of the most popular options is the iShares Russell 2000 Index ETF (IWM). Here’s a closer look at the ETF and its holdings.
Index: Russell 2000
The Russell 2000 consists of the 2,000 smallest companies contained on the Russell 3000.
Exposure: US small-cap equities
Russell’s indices are rules-based and market-cap weighted, so the Russell 3000 contains the 3000 largest companies in the United States by market cap. By taking the bottom 2,000 companies, the index gives broad exposure to American small-cap companies. Despite having two-thirds of the companies on the Russell 3000, it holds only 10 percent of that index’s total market cap.
Market Cap: $25.53 billion
Expense Ratio: 0.25 percent
Dividend Yield: 1.21 percent
While dividends are a relative rarity among small-cap companies, enough feature one that IWM still offers a small quarterly payout.
Average daily volume: 38.21 million shares
This remains a popular play as IWM is among the five most-actively traded ETFs on the market.
Six Month Performance: 13.48 percent
One-year Performance: 31.52 percent
Five-year Performance: 184.59 percent
Top Ten Holdings
athenahealth (ATHN) — 0.43 percent
ISIS Pharmaceuticals (ISIS) — 0.40 percent
Acuity Brands (AYI) — 0.35 percent
Costar Group (CSGP) — 0.34 percent
Alnylam Pharmaceuticals (ALNY) — 0.32 percent
Middelby Corp (MIDD) — 0.30 percent
Rite Aid (RAD) — 0.29 percent
Ultimate Software Group (ULTI) — 0.28 percent
PTC Inc. ($PTC) — 0.28 percent
Aspen Technology (AZPN) — 0.27 percent
All information accurate as of Feb. 24, 2014.
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