"The Russel 2000 Index of Small Caps Has Bettered Major Indices Over 20 Years - Are There Bargains To Be Had?"

"The Russel 2000 Has Out-Performed Both the DJIA and the FTSE 100
Over The Past 20 Years - Its Constituents
Are Worthy of Research"

Introduction

Russel 2000 Index is a small capitalisation Stock Market Index that comprises of the smallest 2000 stocks contained within the Russel 3000 Index (i.e. the bottom two-thirds).

It represents about 10% of the Russel 3000 Index by market capitalisation. The weighted average market cap of the Russel 2000 is about $2.5 Million, with the largest being around $820 Million.

The S and P 500 Index is generally the most used Index for the larger capitalisation stocks.

It was started in 1984 by the Frank Russell Company and is by far the most used benchmark for Mutual Funds in the USA.

The Russel 2000 is very similar to the S and P 600 Index.

"The Russel 2000 Index Record Since 2000"

The Russel 2000 was only inaugurated in 1984 so it does not have a long history.

But just for comparison purposes, here are the yearly returns since 2000 and a comparison with the Dow Jones Industrical Average (DJIA) and the Financial Times Stock Exchange 100 (FTSE 100).

   Year        Russel 2000            DowJones IA           FTSE 100
                  Total Return (%)      Total Return (%)      Total Returns (%)

   2000             -  3.02                       - 6.18                        - 10.10   
   2001                2.49                       - 7.10                        - 16.15
   2002             -20.48                       -16.76                       - 24.48
   2003              47.25                         25.32                         13.62
   2004              18.33                           3.15                           7.54
   2005                4.55                        -  0.61                         16.71
   2006              18.37                          16.29                         10.71
   2007             - 1.57                             6.43                           3.80
   2008             -33.79                        - 33.81                       - 31.33
   2009              27.17                          18.82                          22.07
   2010              26.85                           11.02                           9.00
   2011              - 4.18                             5.53                       -  5.55
   2012              16.35                             7.26                          5.84
   2013               38.82                          25.50                        14.43
   2014                 4.89                            7.52                       -  2.71
   2015               - 4.41                         -  2.23                       -  4.45
   2016                21.31                          13.42                        13.85
   2017                14.65                          25.08                          7.63
   2018               -11.01                         -  5.63                       -12.48
   2019                25.52                           22.34                        12.10

7 Down years and 13 Up years.  Not a great performance.  But marginally better than the DJIA and much better then the FTSE 100.

You can't invest directly in an Index but you can invest in Exchange Traded Funds that can track the Russel 2000.

It is also used as a comparison for small cap Mutual Funds in the U.S.A.

"A Graphical Comparison of The Russel 2000
and Other Major Indices"

GRAPHS IN CONSTRUCTION

Conclusion

The Russel 2000 is not a commonly known market index but it does deserve some attention.

We were surprised to find that over a twenty year period it has outperformed both the DJIA and the FTSE 100 (and no doubt others).  Does that mean we should rush out and turn our attention to small capitalisation stocks?

When posed with a question like that we always say to ourselves:  "What would Warren Buffett do?

And the answer to that is he would probably re-iterate what he consistently says.  And that is he likes to invest 70% in Value Stocks, 20% in Growth Stocks and keep 10% cash for a rainy day.

Which means in the case of small cap stocks such as are within the Russel 2000 Index, he would invest bout 20% of his portfolio.  But not without doing a substantial amount of research before he does.

It would not surprise us if he researched every one of the Russel 2000 constituents. We would think that out of 2000 companies he may just find a few nuggets of gold.

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