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Why is the IWM Small-Cap ETF a Cornerstone for Institutional Portfolios?

Cost-effective access to 2,000 US equities and proven lending opportunities have made it a favorite for many institutions

Investing in small public US companies has long been a strategy to seek superior long-term growth for institutional investors. Since the 1990s, many have gained access through low-cost, ETFs that seek to track the investment results of the Russell 2000 Index – which is comprised of 2,000 small-cap US public companies. By adding small-cap ETFs to their portfolios, institutional investors can tap growth potential in a variety of market conditions, creating flexible strategies that seek to manage risk, maintain liquidity and maximize upside potentials. 

IWM: A staple ETF for institutional investors

Since its creation in May 2000, the iShares Russell 2000 ETF (IWM) has become a cornerstone small-cap vehicle in many institutional portfolios, offering exposure to 2,000 small public US companies in a single, low-cost fund that’s rebalanced yearly. Portfolio managers use IWM as a strategy both for diversifying their US stock allocation and enhancing their long-term growth potential.

Regarding its specific sector exposures, IWM spreads its top five exposures across Healthcare, Financials, Industrials, Information Technology, and Consumer Discretionary (see table below).

As of August 12, 2021, the IWM ETF had net assets of $66,477,829,203 and a 30-day average volume of 29,242,340.

Benefit from ETF lending in two ways

IWM is also a highly popular choice among institutional portfolio managers interested in tapping into the potential for incremental return offered by ETF securities lending – a practice that allows investors to lend their ETFs to borrowers for a fee while still retaining the ownership of the security and exposure to its performance during the loan. The rapid growth of ETF lending has created an opportunity for institutional investors to benefit in two key ways from this market: the potential for steady returns by actively lending the ETFs themselves and by simply holding the ETF in their portfolios.

How? ETFs, such as IWM, continually lend out a select group of their individual constituent securities on their own; the ETF provider performs this lending and the results are automatically reflected in the ETF’s price. Thus, investors may benefit from the fund’s internal securities lending simply by holding the ETF and doing nothing more. Additionally, they can choose to actively lend the ETF out themselves to generate incremental income on top of that. Doing both allows them to potentially accrue lending gains from two streams simultaneously.

IWM has been a favored vehicle in the ETF lending market. Institutional investors with a long position in IWM can not only seek additional income, but also use IWM as part of their risk-management strategy to diversify a US stock allocation.

See the chart below for more details about the iShares Russell 2000 ETF (IWM). You can find more info on this ETF here.

IWM Exposure Breakdown
Source: iShares. As of June 30, 2021. Sector allocations subject to change.


FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal. Small-capitalization companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and less liquid than larger capitalization companies. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.

There is no guarantee that securities lending will generate any level of income. Distributions paid out of the Fund’s net investment income, including income from securities lending, if any, are taxable to investors as ordinary income. There is no guarantee that there will be borrower demand for shares of ETFs, or that securities lending will generate any level of income. ETF share lending revenue is not an element of fund performance and share lending is not a service provided by iShares or BlackRock ETFs or BlackRock Fund Advisors, the funds' investment manager and an affiliate of BlackRock Investments LLC.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Past performance does not guarantee future results. For iShares ETF performance, please visit www.iShares.com or www.blackrock.com. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Russell, nor does this company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with Russell.

iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

FOR INSTITUTIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

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