I haven’t paid much attention to the Russell 2000 during my investing career. My vague perception has been that the R2000 was much more deeply anchored in the domestic US economy than the S&P, with almost all the former’s earnings coming from US operations vs. half or less for the S&P. (Yes, the SEC requires that companies disclose the foreign vs. domestic breakout, but my sense is that companies are worried enough about disclosing this information to competitors that the published figures are directionally correct but not very precise.)

So far this year, the R2000 is up by 12.7% vs. a gain of +21.8% for the S&P. Over the past five years, the R2000 is up by 34.9% vs. +81.8% for the S&P.

There is a significant size difference among the companies that make up each index. The median market cap for the R2000 is $966 million vs. $3 billion for the S&P. The top ten names in the R2000 make up 17.4% of the total market cap of that index vs. 31.6% for the S&P, so the latter is much more top-heavy than the former.

Probably more important, the industry composition of the two differ markedly.

S&P 500 R2000

IT 32.3% 14.8%

Financials 12.8% 16.4%

Healthcare 12.2% 17.6%

Consumer disc. 9.9% 9.9%

Commo Svc 8.8% 2.2%

Industrials 7.6% 15.5%

Staples 6.0% 3.4%

Energy 3.5% 5.1%

Utilities 2.5% 2.8%

Real estate 2.4% 7.5%

Materials 2.0% 4.6%

The bold figures highlight sectors where there’s at least a 5 percentage point difference in weighting between the two indices.

The S&P 500 has a 41.1% weighting in tech and tech-adjacent sectors vs. 17% for the R2000. That’s a 24+ point difference. The R2000 has its big bets on Industrials and Healthcare with, in a sense, the money “taken” from the tech arena.

The average annual return on tech stocks over the past decade has been about +24%. For Healthcare and Industrials, the annual return has been a bit less than 10%.

From the election of Trump in 2016 to his defeat in 2020, the R2000 rose by 29%. From that point until now, the index is +44%