Money making opportunities in small cap stocks – Here’s what Russell 2000 has in store for you

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Updated: Feb 12, 2021 3:46 PM

Russell 2000 is a part of the Russell US Indexes and primarily represents the small-cap stocks listed in the US stock market.

Money making opportunities, small cap stocks, Russell 2000, US stock market, investors, FAANG stocksIn 2021, till date, Russell 2000 is up by nearly 15.58 per cent as against 4.09 per cent by S&P 500 and 5.95 per cent by Nasdaq 100.

The US stock market has opportunities in abundance for investors. While the FAANG stocks have been in the limelight, for the right reasons, one may also consider investing in small-cap stocks. Russell 2000 is one such index to go for when you wish to invest in the lesser-known small-cap stocks. The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

Russell 2000 is a part of the Russell US Indexes and primarily represents the small-cap stocks listed in the US stock market. Russell 1000 Index represents large cap stocks and together with Russell 2000, it forms the Russell 3000 Index. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index.

In 2021, till date, Russell 2000 is up by nearly 15.58 per cent as against 4.09 per cent by S&P 500 and 5.95 per cent by Nasdaq 100. According to Philip Lawlor, head of Global Investment Research FTSE Russell, “US small-cap stocks continued their winning streak in January, riding the early ‘blue wave’ optimism triggered by the new Biden administration’s aggressive fiscal stimulus proposals, and the burst of online retail buying in a handful of small-cap stocks.”

Top ten index stocks

As on January 31, 2021, the top ten companies in the Russell 2000 were Plug Power, Gamestop, Penn National Gaming, Novavax, Caesars Entertainment, Sunrun, Darling Ingredients, Mirati Therapeutics, Ultragenyx Pharma and Ii Vi.

What to do

The volatility in small-cap stocks could be higher than large-cap stocks and hence the risk-reward ratio should be considered before investing in them. Small-cap stocks are riskier than large-caps as they are in the growth stage and generally under-researched. Only once they grow in size, they are recognised by the market and enjoy better valuations. But some of these stocks are on a fast-growth trajectory and hence a careful selection of stocks is imminent. The small-cap segment is a good investment opportunity for long-term investors who have considered both the returns and the risks. Before you decide to invest in small-cap stocks, remember that it should not form the core of your portfolio.

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