Who will be crowned the Russell 3000 ETF? Let’s dive in!
The Russell 3000 is just an index of 3000 small cap companies. Some people would prefer to have exposure to a large number of these 3000 small cap companies so what do they do? Do they go out and buy shares of 500 of them? Or do they go out and buy an ETF that gives them an excellent way of having exposure to a large number of them?
You guessed it! They will undoubtedly go out and purchase an ETF that can give them exposure to every small cap stock they would like. However, there is not just one universal Russell 3000 ETF and a simple Google search will give us three options to choose from in IWV, THRK, and VTHR.
The Russell 3000 ETF Competition
Let’s get right into it ladies and gentlemen. First things first. We would like to know if these three ETF’s have the same type of price movement from one another. If one is an outlier, it probably does not give us the type of exposure we are looking for. Let’s test their correlation against each other.
We can see all three ETF’s are highly correlated to one another. At this point, we cannot throw anything out as they all give us similar price movements and the proper price exposure.
At this point, there is only one more thing to check before we can crown a champion…
We need to examine the liquidity of all three of these potential ETF choices. After we have figured out how liquid each of these is, we will choose the one with the most liquidity. Very unbiased and purely based on the numbers.
The iShares Russell 3000 ETF is the most widely accepted Russell 3000 ETF. But we do not care what Wall Street or financial media (people pushing their products) say, we only care what the true numbers have to say. Let’s see if IWV is liquid enough. How is it’s stock volume?
How about its option volume?
No. Remember, if we cannot trade options, we cannot hedge our positions or give us a better chance of being profitable. If we cannot do that, we walk away. Thus, we are walking away from IWV and are very disappointed in Wall Street for trying to push such a disaster of a product.
The SPDR Russell 3000 ETF comes from the popular SPDR family. This should be good right? Let’s see. How’s that stock volume? We are hoping for something in the millions here people.
LOLZ. No. What about option volume? Remember, we are looking for tens of thousands…
THRK is a miserable fail. Maybe our third choice will be better?
The Vanguard Russell 3000 ETF should be good right? It’s Vanguard…so how could it be bad? Don’t they have something like a trillion dollars under management? C’mon Vanguard…let’s see that stock volume in the millions!
Buahahaha. Nice Vanguard. The only question at this point is how bad are their options markets going to be? Who wants to guess how bad?
So bad. So bad.
Ut Oh…What do We do Now?
Well, we unfortunately just showed you why none of these ETF’s can be your Russell 3000 champion. Not only do they lack any lick of meaningful stock volume, two out of three of them don’t even allow for options trading. We need to run the other way.
Fortunately for you, you are reading this post and we are going to introduce you to the ETF that can give you the best exposure with the most liquidity to the Russell 3000. I have a wild guess, how about the Russell 2000 ETF (IWM)!
For starters, the Russell 2000 ETF is highly correlated to all of the Russell 3000 ETF wannabees.
Highly correlated. It’s 2000 small cap stocks instead of 3000. How could it not be so highly correlated?
What about liquidity…isn’t that what we care about next?
Absolutely, and I think the best way to show the liquidity for these four would be to show them in a little table.
|Symbol||Market Cap||Stock Volume||Options Volume|
We don’t need to say anything more here…do we?
IWM is the Russell 3000 ETF…And Russell 2000 ETF!
IWM is the champion.
Want exposure to the Russell 3000 and don’t want to buy all of those small cap stocks? Go ahead and buy some IWM. It gives us the price exposure we want to the Russell 3000 with hundreds of time more liquidity.
Remember, without liquidity, we have nothing. If we do not have liqudity, we will not be able to trde at fair market value and have to enter trades and investments at a loss. On top of that, without liquidity we are not able to hedge our positions or improve out chances of making money.