What IWM actually is

IWM is the iShares ETF that follows the Russell 2000 Index, a float-adjusted, capitalisation-weighted index of the smaller companies in the broader Russell 3000. It may use derivatives to gain or reduce exposure to the index.

It launched in 2000 and is one of the most traded small-cap ETFs.

What is inside

Roughly two thousand smaller US companies, many of which are less well known than the big names in large-cap funds. They include regional banks, small industrial and health-care companies and emerging technology businesses.

Smaller companies can grow faster than large ones, but they are also more volatile, and some are not yet profitable.

Distributions

Small caps generally reinvest more of their earnings and pay less in dividends, so IWM’s yield is typically low, often below that of a broad large-cap fund. Check the fund’s current yield, fees and distribution schedule on the issuer’s website, because they change.

What to keep in mind

  • Higher volatility. Small caps can swing more than large ones.
  • Unprofitable companies. The index includes companies that lose money.
  • Interest-rate sensitivity. Smaller firms rely more on borrowing.
  • Not an income fund. It is a growth and diversification tool.

Quick take

IWM adds small-company exposure to a portfolio, with more growth potential and more risk than large-cap funds. It does little for income. See growth vs dividend stocks.