As the stocks of small public U.S. companies tend to have less liquidity than stocks of larger entities, their lending spreads tend to be wider – and that’s helpful to institutions that either hold the stocks over a long period or incorporate them into their securities lending strategy. These wider spreads paired with borrow demand can generate additional yield as the shares are repeatedly lent out.
This can make small-cap ETFs a highly useful portfolio component for institutional investors. Given that the fortunes of small-cap companies have tended to be more closely tied to the performance of the overall U.S. economy than of larger companies, they can potentially offer outsized gains during strong economic climates. Additionally, the ETF can lend out the underlying securities of the fund, which can further add to the fund’s total returns.
When seeking to capture these potential benefits, institutional investors may choose ETFs that aim to track well-established small-cap indexes – with the Russel 2000® Index serving as a popular choice.
Why do many small-cap ETFs seek to track the Russell 2000 Index?
Launched in January 1984, the Russell 2000 Index is comprised of the 2000 smallest, public U.S. companies in the larger Russell 3000® Index (which was also founded in January 1984 and includes approximately 98% of all publicly traded U.S. companies). It’s one of the most commonly used benchmarks for measuring the performance of many financial vehicles that focus on small-cap stocks, such as ETFs and mutual funds.
The versatility of IWO
The iShares Russell 2000 Growth ETF (IWO), which launched in July 2000, is comprised of small, public U.S. companies that are expected to see above-average earnings relative to their market peers. It’s provided a simple choice for institutional investors looking to diversify or tilt their portfolios toward small-cap growth stocks for more than two decades. IWO is one of three Russell small-cap offerings in a suite of iShares ETFs (the other two are IWM and IWN).
When added to the inherent benefits of using ETFs rather than buying individual stocks – such as easier diversification and yearly rebalancing – IWO can give institutional investors their chosen degree of exposure to U.S. small caps while enhancing the simplicity of their portfolios. These are just some of the reasons why more institutions are using ETFs as both strategic tools and core investment vehicles.
And for just a few specifics on this small-cap ETF, investors may note that IWO…
- Spreads its top five sector exposures across Healthcare, Information Technology, Consumer Discretionary, Industrials, and Financials, as of October 15, 2021 (see table below);
- had 1,224 underlying holdings, as of October 15, 2021;
- · and had net assets of $12,019,253,946 and a 30-day average trading volume of $467,883.00 as of October 18, 2021.
See the charts below for more details. Learn more about IWO here.
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 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. Buying and selling shares of ETFs may result in brokerage commissions.
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”).
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