Global X Russell 2000 ETF (ASX: RSSL)

The Global X Russell 2000 ETF (RSSL) offers a strategic entry into the high-growth potential of United States small-cap equities. By tracking the Russell 2000 RIC Capped Index, the fund provides exposure to approximately 2,000 early-stage companies that form the engine of the American domestic economy. These smaller firms are often characterised by their agility and innovation, frequently outperforming large-cap benchmarks during periods of economic recovery or interest rate easing.

RSSL utilises a capped weighting methodology to ensure a balanced portfolio, effectively reducing the concentration risk typically found in mega-cap heavy indices. With a strong domestic focus, these companies are well-positioned to benefit from homegrown growth while remaining insulated from global trade tensions. This fund serves as an essential diversification tool, capturing the critical industrials, financials, and healthcare sectors that underpin the next generation of American economic prosperity.

The Global X Russell 2000 ETF (RSSL) offers investors exposure to US small-cap equities through the Russell 2000 RIC Capped Index. This index tracks approximately 2,000 companies that represent the smallest constituents of the Russell 3000 Index. By focusing on small caps, RSSL enables investors to capture high-growth opportunities in early-stage companies while benefiting from a balanced and diversified approach.

Small-cap companies often derive a significant portion of their revenue domestically, reducing their reliance on global trade. This domestic focus, combined with their agility and innovation, positions small caps to outperform during periods of economic recovery or favourable monetary conditions.

The Global X Russell 2000 ETF seeks to provide investors with a return that (before fees and expenses) tracks the performance of the Russell 2000 RIC Capped Index.

Over the past two decades, the Russell 2000 has consistently outperformed large-cap benchmarks like the S&P 500 during periods of economic recovery. This is largely due to small caps’ higher sensitivity to domestic growth and interest rate changes.

The Russell 2000 RIC Capped Index provides a more balanced exposure compared to uncapped indices by ensuring no single stock dominates the fund. This methodology has historically kept concentration risk low while maintaining high correlation with the broader Russell 2000 Index.

Additionally, small caps tend to have higher exposure to sectors such as Financials, Industrials, and Health Care - areas that are less represented in large-cap indices but are critical to economic growth.

Small caps are particularly well-positioned to benefit from the current economic environment. Lower interest rates reduce borrowing costs, enabling these companies to reinvest in growth and innovation¹. The Russell 2000 Index has historically outperformed during periods of rate cuts, driven by its higher proportion of companies with floatingrate debt.

Furthermore, as global trade tensions continue to shape markets, small caps’ domestic focus provides insulation from external shocks. This makes them an appealing choice for investors seeking stable, homegrown opportunities.

¹ CME Group – Are S&P 600 & Russell 2000 Small Caps Due for a Rebound?

• A core allocation to diversify portfolios with US small-cap equities.
• A tactical allocation during economic recovery or interest rate easing cycles.
• A means to complement large-cap holdings by reducing concentration in mega-capheavy indices like the S&P 500.

The Russell 2000 RIC Capped Index is designed to track the performance of approximately 2,000 small-cap US companies while maintaining a balanced exposure. The index applies quarterly stock weight caps, ensuring no single company disproportionately impacts the fund’s performance. This methodology provides investors with diversified access to early-stage innovators and domestically focused businesses, while mitigating risks associated with over-concentration.

Volatility: Small-cap equities tend to exhibit higher volatility compared to large caps, reflecting their growth potential and early-stage nature.

Sector Weightings: With higher exposure to Financials, Industrials, and Health Care, RSSL may experience sector-specific risks.

Macroeconomic Sensitivity: Small caps are sensitive to domestic growth conditions and interest rate changes, which can amplify performance in both directions.

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Information current as at 5 February 2024.