Vanguard Russell 2000 ETF

VTWO

Market cap $12.9B

Launched on September 22, 2010, the Vanguard Russell 2000 ETF (VTWO) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Blend segment of the US equity market.

Vanguard Russell 2000 Index Fund ETF is rated a buy, supported by strong earnings growth prospects and attractive valuation. VTWO benefits from historical small-cap outperformance after Fed rate cuts and a diversified sector allocation with no single sector over 18%. The ETF offers low expenses, solid liquidity, and a balanced mix of value, blend, and growth, but carries inherent small-cap risks.

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@BramBerko Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

At the beginning of 2024, well-known Wall Street analyst Tom Lee made a bold prediction -- that the Russell 2000, which is the most widely used small-cap stock index, would rise by 50% in a year.

There are some good reasons all stock investors should have small-cap exposure in their portfolios. For example, small caps inherently have more growth potential than their large-cap counterparts -- after all, most of the stocks currently in the large cap S&P 500 index started out as small caps.

Looking for broad exposure to the Small Cap Blend segment of the US equity market? You should consider the Vanguard Russell 2000 ETF (VTWO), a passively managed exchange traded fund launched on September 22, 2010.

Funds tracking the Russell 2000 index have been a mainstay for investors for years, giving them the opportunity to own a little piece of 2,000 U.S.-based small-cap companies. At times, the index has outperformed the S&P 500 during periods of rapid economic expansion.

VTWO offers diversified small-cap exposure with low idiosyncratic risk, but is more sensitive to macroeconomic factors than large-cap funds. Despite recent momentum, VTWO has historically underperformed the S&P 500, especially during periods of economic stress and market volatility. Current market conditions and macro risks make broad small-cap exposure less attractive compared to large caps, even if some risks subside.

The Vanguard Russell 2000 Index Fund ETF Shares is overweight cyclical sectors such as Financials, Industrials, and Consumer Discretionary. The Fed sees 2025 U.S. GDP growth at only 1.4%—the weakest since the start of the 2020 economic recovery. Looking ahead to 2026–2027, the U.S. economy should pick up steam, benefiting VTWO's cyclical overweight positions.