The iShares Russell 2000 ETF (IWM) is a popular ETF designed to track the performance of the Russell 2000 Index, which represents small-cap US stocks. Launched in May 2000, IWM provides exposure to 2,000 small-cap companies across various sectors, offering investors a way to participate in the growth potential of smaller publicly traded companies in the US.
Small-cap stocks are often seen as a leading indicator of economic health, as these companies are typically more sensitive to domestic economic conditions. As such, IWM is a favourite among investors looking for diversification, growth opportunities, and exposure to emerging leaders in a well-performing economy.
As of early December, 2024, IWM’s net assets stood at approximately $78.9 billion, making it one of the largest and most traded small-cap ETFs. Financials currently make up 18.99% of the index, with industrials coming in at 17.81%, followed by Health Care at 16.06%.
Russell 200 Forecast
Bull Argument: Dan Lefkovitz, a strategist for Morningstar Indexes, said in a November 17 article that small-cap stocks look attractive regardless of the election results. “Clearly, small caps are one of this year’s ‘Trump Trades,'” said Lefkovitz. He explained that the market sees small-caps as a Trump trade as it “is clearly betting on… an infusion of economic energy,” noting that tax cuts, deregulation, and pro-business policies are expected from President Trump and the Republican majority in Congress.
He also believes the proposed tariffs are key to the small-value rally, stating: “The goal of slapping tariffs on imported goods is to protect American industry. Businesses in the small-value section of the US equity market tend to be domestically focused.”
Bear Argument: While there seems to be a lack of recent bearish analysis on the Russell 2000, earlier this year, in May, to be more precise, BlackRock’s Head of iShares Investment Strategy, Kristy Akullian, told investors that the Fed’s “higher for longer” rate outlook was disproportionately weighing on smaller companies. While rates have been lowered since thin, the recent talk about the pace of cuts slowing in 2025 could pose a potential headwind for the Russell 2000 and the IWM ETF.
In addition, analysts have previously highlighted concerns around debt levels when it comes to small-cap stocks.
Our View: We believe the iShares Russell 2000 ETF is a good choice for investors looking to diversify their portfolios with exposure to small-cap stocks. Its broad scope, liquidity, and alignment with US economic trends make it an ideal holding for those looking for small-cap exposure.
Given the nature of small-caps, investors should be prepared for higher volatility and assess their risk tolerance before investing. The RVX index tracks the volatility in the Russell 2000, and can traded as a volatility hedge.
It is important to be aware that while the IWM offers long-term growth potential, its performance can be cyclical, making it more suitable for investors with a long-term horizon who are willing to endure short-term fluctuations.
iShares Russell 2000 ETF Performance
| Year | Performance |
|---|---|
| 2024 (YTD) | +20.01% |
| 2023 | +16.84% |
| 2022 | -20.48% |
| 2021 | +14.54% |
| 2020 | +20.03% |
The iShares Russell 2000 ETF has experienced volatility over recent years, reflecting the cyclical nature of small-cap stocks and their sensitivity to interest rates, inflation, and economic conditions. However, it has performed solidly.
ETFs Comparison
IWM Top Holdings (as of November 21, 2024)
| Company | % Weight |
|---|---|
| FTAI Aviation | 0.61% |
| Sprouts Farmers Market | 0.51% |
| Insmed | 0.40% |
| Applied Industrial Technologies | 0.37% |
| Vaxcyte | 0.37% |
| Mueller Industries | 0.34% |
| Fluor Corp | 0.33% |
| Carpenter Technology | 0.32% |
| HealthEquity | 0.31% |
| Revolution Medicines | 0.30% |
Who Should Buy the IWM ETF?
It is important for investors to make sure that they put their cash into assets that suit their investing style. While you may be bullish, investors should make sure the IWM ETF aligns with their investing goals.
The IWM may not be suitable for everyone. However, growth-focused investors, those seeking exposure to companies with high growth potential, particularly in early development stages, may see it as a more suitable option.
In addition, investors looking to diversify across a wide range of stocks may see it as a potential investment option, while those aiming to gain small-cap exposure to balance portfolios dominated by large-cap holdings may also find it attractive.
Furthermore, investors taking a position in the IWM ETF should have a bullish outlook on the US economy and believe small caps will benefit from domestic trends.
Meanwhile, more risk-averse investors might prefer other ETFs, such as the SPY, as the IWM’s exposure to small caps can lead to higher volatility.
