iShares Russell 2000 ETF Outperforms S&P 500 Amid Diversification

**IWM Outperforms S&P 500 on Diversification**

The iShares Russell 2000 ETF (IWM) has achieved a 21.5% year-to-date return as of August 27, surpassing the S&P 500's 13% gain for the same period. This performance marks IWM's strongest start to a year since 2021.

The ETF, which tracks the Russell 2000 index, holds 1,962 small-cap stocks across all 11 major U.S. sectors. Its sector allocation differs substantially from the S&P 500, which is heavily weighted towards technology. For instance, Healthcare constitutes 21.07% of IWM, compared to 9.10% in the S&P 500, while Information Technology represents 12.75% of IWM versus 36.60% in the S&P 500.

This broader diversification within IWM, with its top holding Moog at just 0.35%, stands in contrast to the S&P 500's concentration, where the "Magnificent Seven" stocks account for a third of the index. The current market environment, characterized by high valuations and concentration risk in large-cap tech, may be driving investors to seek value in smaller, more diversified companies.

Despite traditionally underperforming the S&P 500 over the long term, exposure to small-cap stocks like those in IWM can contribute to a well-diversified portfolio. Investors are advised to consider their overall portfolio allocation, with some recommending keeping small-cap exposure below 10%.