A Russell 2000 Bull Market Could Be Coming: One Spectacular BlackRock ETF to Buy Hand Over Fist Before It Gets Here
The Russell 2000 index is a prominent benchmark that comprises approximately 2,000 of the smallest publicly traded companies on U.S. stock exchanges. While major indices like the S&P 500 have achieved record levels, the Russell 2000 has been lagging behind, yet is poised for potential gains. There are several factors indicating that the Russell 2000 could soon embark on a bull market, particularly driven by falling interest rates and favorable economic policies from the incoming Trump administration.
The Russell 2000 is positioned just 8.9% away from its all-time high, making the backdrop of economic conditions and potential policy changes critical. Among the investment options available, one standout is the iShares Russell 2000 ETF (NYSEMKT: IWM), managed by BlackRock through its iShares subsidiary.
A Simple Way to Invest in Small-cap Stocks
Although the S&P 500 consists of a diverse array of companies, it has increasingly become concentrated in certain sectors. As of recent evaluations, the information technology sector alone accounts for a remarkable 32.4% of the S&P 500’s entire value. In contrast, the Russell 2000 presents a more balanced investment landscape. The largest sector within the index is industrials, which comprises just 18.9% of its total, followed closely by healthcare (17.4%) and financials (17.2%).
In the iShares Russell 2000 ETF, the top 10 holdings constitute merely 4.06% of the fund’s value, denying unduly heavy influence from a few large stocks. Here are the top 10 holdings:
- FTAİ Aviation – 0.64%
- Sprouts Farmers Market – 0.53%
- Insmed – 0.42%
- Credo Technology Group – 0.38%
- Vaxcyte – 0.37%
- Applied Industrial Technologies – 0.36%
- Rocket Lab USA – 0.35%
- SouthState – 0.35%
- Mueller Industries – 0.33%
- Carpenter Technology – 0.33%
These companies largely operate within the United States, which is vital for understanding their growth trajectories. For example, Sprouts Farmers Market runs over 400 grocery stores nationwide while Insmed focuses on innovative treatments for rare diseases with headquarters in New Jersey. SouthState, meanwhile, serves as a regional bank catering to domestic clientele.
The Russell 2000 Could Benefit From Significant Tailwinds
Compared to larger tech companies which often have substantial cash reserves, companies within the Russell 2000 frequently require debt financing for growth initiatives. They show a higher sensitivity to interest rate fluctuations, with about 38% of the debt held by Russell 2000 companies based on floating rates, compared to just 6% for S&P 500 firms, as reported by JPMorgan Chase. Thus, the recent three interest rate cuts by the Federal Reserve, and potential further cuts, may significantly benefit smaller companies in 2025.
Beyond the economic factors, political landscapes are also crucial. Incoming President Trump pledged various business-friendly policies such as tariffs on foreign goods and deregulation efforts intended to lower domestic compliance costs. Such policies aim to enhance competitive positioning for American companies.
The iShares ETF Could Outperform This Year
Historically, the iShares Russell 2000 ETF delivered impressive returns under similar circumstances. For instance, in 2017, during the beginning of Trump’s previous term, the ETF provided returns of 13.1%, far exceeding its average annual return of 7.9% since inception in 2000. As Trump begins a new term with an agenda closely resembling his past policies, this environment, combined with anticipated rate cuts, positions the iShares Russell 2000 ETF favorably for another impressive performance in 2025.
Should a gain of 13.1% be on the horizon again, it would lead the Russell 2000 into a **new bull market**, representing a promising investment opportunity as more investors consider their allocations in the wake of changing economic dynamics.