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Tuesday, March 1, 2011

Mutual Funds Review: Russell 200 Index funds

Russell 2000 index funds are mutual funds and exchange traded funds (ETFs)based on the Russell 2000 index (^RUT). The Russell 2000 index is an equity weighted price metric for small capitalization companies also known as small caps. The Russell 2000 is considered an important index for measuring the performance of smaller companies across various industries and has several key features.

• Measures performance of companies with less than $1 billion in equity
• Consists of 2000 U.S. Small Capitalization companies
• Diversified across a number of industrial and service sectors
• Weighted for capitalization

Funds that attempt to correlate either directly or inversely with the index are trying to provide investors with a basket of small cap businesses similar in size and performance to those companies within the Russell 2000 index, or in the case of inverse funds, financial instruments believed to perform contrary to that of the businesses within the Russell 2000. Some Russell 2000 Index funds are listed below.

Russell 200 Index Funds

Two fund families that have several Russell 2000 Index related funds are iShares and Rydex, and a third company managing Russell 2000 related assets is Proshares. The 'I' in iShares stands for index and the Rydex fund family is named after the asset management company overseeing the index portfolios. Both iShares and Rydex fund families are run by experienced and well known global asset management firms.

• iShares Russell 2000 Index (IWM)
• Ultra Russell 2000 ProShares (UWM)
• Rydex 2X Russell 2000 (RRY)
• Rydex Inverse Russell 2000 Strategy A (RYAKX)

Russell 200 Index Funds performance

Performance of Russell 2000 Index funds varies between the function and type of asset management the fund undertakes. Since many of the Russell 2000 Index funds attempt to mimic the Russell 2000 index performance, a high correlation between the fund and the index is desirable in addition to fund returns and low fees.

Small capitalization funds that are solely dedicated to matching the index return tend to perform weakly in poor economic times. However, the inverse hedge strategy fund managed by Rydex has been able to perform its role of contrary performance to the market through its investments in Government securities.

The risk level for several Russell 2000 Index funds is quite high due to the size of the fund's underlying assets, however, not all Russell 2000 Index funds invest in the same companies as the index meaning performance can vary. Expense ratios below 1% are common among Russell 2000 index funds, an example being the iShares Russell 2000 Index (IWM) at .15% . (finance.yahoo.com). The size of the funds themselves ranges from small to large, growth to blend meaning the fund may have billions of dollars of liquid assets in the Russell 2000 index companies or companies like them, or have either growth, value or combination categorized companies in their portfolio.

Derivative leveraged Russell 2000 funds such as the Rydex 2X Russell 2000 (RRY), utilize these financial instruments to increase returns on the base Russell 2000 Index, hence the 2X in the fund name. Naturally, when the Russell 2000 Index performs poorly, the Rydex 2X Russell 2000 index is more likely to amplify losses experienced by non-derivative leveraged funds. The Ultra Russell 2000 Proshares fund (UWM) also seeks to double the performance of the Russell 2000 index.

Russell 2000 Index funds are a class of funds ranging from small to large, value to growth that make use of the Russell 2000 Index as a base metric to 1) replicate 2) multiply and 3) inverse. Several Russell 2000 Index funds have low expense ratios below 1% and do correlate with the Russell 2000 index. Some of the Russell 2000 Index funds offer dividends in addition to any capital appreciation incurred through ownership of the fund's shares.

The performance of Russell 2000 Index funds varies dependent on factors such as fund function, management, type, diversification and other key variables. Incorporating Russell 2000 Index funds into an investment strategy could correlate the index's risk making a risk assessment of one's investment strategy important to one's investment planning. Consulting a financial adviser or planner may assist in the process of incorporating the right funds into ones financial plans and/or goals.


Originally written 06/01/2009 

1 comment:

  1. Have you tried the technical analysis tool on Yahoo Finance? There are 1, 2, 5 and max year multiple moving averages for the IWM > http://tinyurl.com/769byma