What is the Russell Microcap Index?
The Russell Microcap Index measures the microcap segment of the U.S. equity market. It covers the smallest companies in the Russell 3000 (approximately the largest 3,000 U.S. companies by float-adjusted market cap) plus approximately the next 1,000 companies below the Russell 3000's lower size boundary. This makes it a deliberately broad measure of the very smallest publicly traded U.S. companies, extending below the floor that both the Russell 2000 and the Russell 3000 set. FTSE Russell, a subsidiary of LSEG (London Stock Exchange Group), maintains the index and publishes its full methodology.
Index Provider: FTSE Russell
FTSE Russell is the index division of LSEG (London Stock Exchange Group) and is the provider of the entire family of Russell US indexes, including the Russell 1000, Russell 2000, Russell 2500, Russell 3000, and Russell Microcap. The firm publishes a detailed construction methodology document that covers eligibility criteria, float adjustment procedures, weighting rules, and the reconstitution calendar. All Russell US indexes, including the Russell Microcap, follow the same annual reconstitution process and share a common eligible universe of U.S.-listed companies.
Investors, fund managers, and researchers who need the authoritative methodology for the Russell Microcap should refer to FTSE Russell's published documentation at lseg.com/en/ftse-russell/indices/russell-us. The methodology is updated periodically, and FTSE Russell announces material changes in advance.
How the Russell Microcap Is Constructed
The Russell Microcap is built from two distinct groups of companies. The first group consists of the smallest companies within the Russell 3000. The second group consists of companies that sit just below the Russell 3000's lower size boundary but still meet FTSE Russell's basic eligibility screens. Together, these two groups define the microcap tier of the U.S. public equity market as FTSE Russell sees it.
To be eligible, companies must be incorporated in the United States and trade on an eligible U.S. national exchange. Companies must also pass minimum market capitalization thresholds at the time of reconstitution, meet minimum float requirements, and satisfy liquidity criteria. Because many very small companies trade infrequently, a significant portion of the smallest publicly traded U.S. companies fail the liquidity screen and are excluded. Pink sheet stocks and OTC bulletin board stocks are not eligible; the index requires listing on a national exchange recognized by FTSE Russell.
Certain types of securities are excluded from eligibility regardless of size. Special purpose acquisition companies (SPACs), certain closed-end funds, and other investment vehicles are excluded. FTSE Russell publishes a complete list of exclusions in its methodology documentation.
The exact number of companies in the index changes from year to year, reflecting new listings, delistings, mergers, bankruptcies, and changes in market capitalization that move companies across size boundaries. Because this is the microcap tier, turnover within the index tends to be higher than in larger-cap indexes.
Weighting Method: Float-Adjusted Market Cap
The Russell Microcap uses float-adjusted market capitalization weighting. Each company's weight in the index equals its float-adjusted market cap divided by the total float-adjusted market cap of all members. Float adjustment removes shares that are not freely available to public investors, such as shares held by insiders, controlling shareholders, or other entities that do not regularly trade their holdings.
Float adjustment matters most in the microcap universe because many small companies have founding shareholders, private equity sponsors, or other concentrated owners who hold large blocks of stock. Without float adjustment, these closely held companies would receive higher weights than their actual market presence among public investors justifies. By adjusting for float, the index reflects what is tradable rather than what simply exists on a company's balance sheet.
In a market-cap-weighted microcap index, the largest companies by float-adjusted market cap still receive the most weight, even though all members are small on an absolute basis. This means the index is not an equal-weight exposure to the microcap universe; companies at the upper size range of the microcap tier account for a disproportionately large share of total index weight relative to the number of constituents they represent.
Reconstitution: Annual in June
FTSE Russell reconstitutes all Russell US indexes annually each June. The process begins in May, when FTSE Russell ranks the eligible universe of U.S.-listed companies by float-adjusted market cap based on prices observed during a specific measurement period. The preliminary membership list is announced in late May or early June, giving market participants advance notice of which companies will be added or removed. The new membership takes effect at the end of June, coinciding with quarterly options and futures expiration.
Because the reconstitution is announced before it is implemented, the period between the announcement and the effective date can be marked by significant trading activity in affected securities. Stocks being added to the index often rise as index funds buy in advance, while stocks being removed may fall as index funds sell. This effect is more pronounced in larger, more liquid indexes like the Russell 2000; in the microcap tier, the thin liquidity can make reconstitution-driven price moves more extreme and harder to exploit efficiently.
Between annual reconstitutions, FTSE Russell conducts quarterly reviews to add companies that became eligible through initial public offerings or corporate spinoffs. A company that conducts an IPO at a market cap falling within the microcap tier may be added at the next quarterly review rather than waiting until the annual reconstitution.
Characteristics of the Microcap Tier
The microcap tier concentrates the most severe versions of the characteristics associated with small-cap stocks. Understanding these characteristics is important for any investor or researcher considering the Russell Microcap as a benchmark or as a basis for an investment strategy.
Analyst coverage. Most microcap companies receive little or no coverage from professional equity analysts at major brokerage firms. The economics of equity research make it difficult to justify the cost of covering a company whose stock has very low trading volume, since brokerages earn commissions from trades. The result is that information about microcap companies is harder to obtain and verify than information about larger companies, creating significant information asymmetry between company insiders and outside investors.
Liquidity constraints. Microcap stocks typically have low average daily trading volume. For an investor or fund manager trying to build or exit a large position, this illiquidity creates real costs: the bid-ask spread (the difference between what a buyer must pay and what a seller receives) is usually wider than for larger-cap stocks, and a large order can move the price substantially before it is fully executed. These transaction costs are often large enough to erode a significant portion of any return advantage that microcap exposure might otherwise provide.
Business risk. Microcap companies are often at early stages of business development. Many have limited operating histories, thin profit margins, limited access to capital markets, and lower financial flexibility than larger companies. The probability of business failure, bankruptcy, or delisting is materially higher in the microcap tier than in the small-cap or large-cap tiers.
Return potential and academic research. Academic finance has documented a size premium, meaning that smaller stocks have tended to deliver higher returns than larger stocks over long historical periods after controlling for broad market exposure. The microcap tier sits at the extreme end of this size spectrum. However, research also shows that this premium is reduced or eliminated when realistic transaction costs are applied, and it has not been consistent across all subperiods. Investors should not treat the historical academic findings as a guarantee of future outperformance, particularly given the costs involved in replicating microcap exposure.
How Investors Use the Russell Microcap Index
The Russell Microcap serves primarily as a benchmark for microcap-focused investment strategies and academic research into small-company equity performance. Institutional investors and academic researchers use it as a reference point for measuring return, risk, and factor exposure in the microcap segment.
Practical replication of the full index in a fund is significantly harder than replicating broader Russell indexes. The combination of many small constituents, thin liquidity, wide bid-ask spreads, and high turnover makes full replication expensive. Most funds that describe themselves as microcap-focused and reference the Russell Microcap as a benchmark hold a more liquid subset of its constituents or use other replication strategies rather than tracking every member precisely.
Investors considering microcap exposure should pay close attention to expense ratios, portfolio turnover costs, and tracking methodology, since these factors can have a larger impact on net returns in the microcap tier than they do in more liquid markets.
Russell Microcap vs. Other Russell Indexes
Understanding where the Russell Microcap fits relative to the other Russell US indexes helps clarify what it measures and what it does not.
Russell Microcap vs. Russell 2000. The Russell 2000 covers the 2,000 smallest companies within the Russell 3000. The Russell Microcap extends below the Russell 3000's lower size boundary, capturing companies that are too small even to qualify for the Russell 3000. The microcap tier is materially less liquid, less covered by analysts, and more prone to extreme price movements than the small-cap tier represented by the Russell 2000. Funds tracking the Russell 2000 are far more common and more practical to implement than funds tracking the Russell Microcap.
Russell Microcap vs. Russell 2500. The Russell 2500 combines the Russell 2000 with the smallest 500 companies from the Russell 1000, covering a range that extends slightly upward toward mid-cap territory compared to the Russell 2000 alone. The Russell Microcap goes in the opposite direction, capturing companies that fall below the Russell 2000's floor rather than adding companies above it.
Russell Microcap vs. Russell 3000. The Russell 3000 covers approximately the 3,000 largest U.S. companies and does not include microcap stocks. The Russell Microcap is specifically designed for the tier of companies that are too small to enter the Russell 3000 or that sit at the very bottom of it.
Frequently Asked Questions
Who maintains the Russell Microcap Index?
FTSE Russell, a subsidiary of LSEG (London Stock Exchange Group), maintains the Russell Microcap Index and publishes the methodology that defines eligibility, float adjustment, weighting, and the reconstitution schedule.
How does the Russell Microcap Index differ from the Russell 2000?
The Russell 2000 covers the 2,000 smallest companies within the Russell 3000 index. The Russell Microcap extends below the Russell 3000's lower size boundary, including companies too small to qualify for the Russell 3000 at all. The Russell Microcap captures the very smallest tier of publicly traded U.S. companies, which tend to have far lower liquidity and thinner analyst coverage than even the smallest Russell 2000 members.
How often is the Russell Microcap Index reconstituted?
FTSE Russell reconstitutes the Russell US indexes annually each June. The ranking process runs in May, and the new membership takes effect at the end of June. IPOs and newly eligible companies may be added at quarterly reviews between the annual reconstitutions.
What makes microcap stocks different from small-cap stocks?
Microcap companies are smaller than the companies in the Russell 2000 (the standard small-cap benchmark). They typically have lower trading volumes, wider bid-ask spreads, minimal analyst coverage, and higher risk of delisting or business failure. These characteristics make replicating a microcap index significantly harder and more costly than replicating a small-cap index such as the Russell 2000.
Is the Russell Microcap Index float-adjusted market-cap weighted?
Yes. Each company's weight in the Russell Microcap equals its float-adjusted market capitalization divided by the total float-adjusted market cap of all index members. Float adjustment removes closely held shares not available for public trading, so the index weight reflects tradable ownership rather than total shares outstanding.
Do companies in the Russell Microcap also appear in other Russell indexes?
The companies that form the microcap segment of the Russell 3000 may overlap with the Russell 2000, since the Russell Microcap includes some of the smallest Russell 3000 members. However, companies below the Russell 3000 eligibility floor appear only in the Russell Microcap and not in any other Russell US index. FTSE Russell publishes the exact membership list for each index.