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KYCO: Know Your Company

Reveal Profile

17 December 2025

1) Overview of the Company

The iShares Russell 2000 ETF (ticker: IWM) is an exchange-traded fund launched May 22, 2000, that seeks to track the investment results of the Russell 2000 Index, which measures the performance of the small-capitalization segment of the U.S. equity universe. The fund trades on NYSE Arca and maintains net assets of approximately $74.6 billion as of December 2025, representing one of the largest and most established small-cap ETF offerings in the market.

The ETF is managed by BlackRock Fund Advisors as part of the broader iShares family of exchange-traded funds, which comprises over 1,500 ETFs globally and represents the largest issuer of ETFs in the United States and worldwide. iShares Russell 2000 ETF provides investors exposure to approximately 2,000 small-capitalization U.S. companies through a single, liquid, and cost-efficient investment vehicle with an expense ratio of 0.19%.

The fund operates under the investment objective of tracking the Russell 2000 Index through representative sampling techniques, enabling investors to gain diversified exposure to the small-cap equity market segment without the complexity and costs associated with purchasing individual securities. As an ETF structure, the fund offers intraday trading capabilities, tax efficiency benefits, and transparency of holdings, making it accessible to both individual and institutional investors seeking small-cap U.S. equity exposure.

BlackRock acquired the iShares brand and business platform from Barclays Global Investors in June 2009 in a mixed cash-stock transaction valued at approximately $13.5 billion, consolidating the ETF operations under BlackRock’s global asset management platform. The fund benefits from BlackRock’s risk management expertise and operational infrastructure, including the firm’s Aladdin investment management platform that supports portfolio construction and risk analysis across the organization’s investment strategies.

2) History

The iShares Russell 2000 ETF represents part of a broader evolution in exchange-traded fund innovation that began in the 1990s. The ETF structure traces its origins to the pioneering work at Wells Fargo in 1973, which developed the first index fund based on the S&P 500, with this unit later being sold to Barclays and subsequently to BlackRock in 2009.

The foundation for what would become the iShares brand was established through Morgan Stanley’s launch of World Equity Benchmark Shares (WEBS) in cooperation with Barclays Global Investors, which tracked MSCI foreign stock market indices and utilized mutual fund structures rather than unit investment trusts. In 2000, Barclays implemented a significant strategic initiative to expand the ETF market, launching over 40 new funds under the newly created iShares brand, supported by extensive education and marketing efforts led by Lee Kranefuss, who collaborated with ETF inventor Nate Most.

The iShares Russell 2000 ETF specifically launched on May 22, 2000, as part of this broader expansion of the iShares product suite, providing investors with exposure to the small-capitalization segment of the U.S. equity market through the Russell 2000 Index. The fund represented an early offering in the small-cap ETF space, building on the success of broader market index ETFs that had gained traction throughout the late 1990s.

A significant ownership transformation occurred when BlackRock acquired the entire Barclays Global Investors division, including the iShares business, in June 2009 through a mixed cash-stock transaction valued at approximately $13.5 billion (37.8 million shares of common stock and $6.6 billion in cash). This acquisition followed an earlier agreement where Barclays had planned to sell iShares to CVC Capital Partners for more than $4 billion, but BlackRock’s superior bid under a 45-day “go shop” clause ultimately secured the purchase.

Under BlackRock’s ownership, the iShares platform has continued to expand, with the organization becoming the largest issuer of ETFs globally and increasing its suite of “iShares Core” funds to provide investors with foundational portfolio building blocks. The platform has grown to encompass over 1,600 ETFs globally as of 2025, representing more than two decades of continuous product development and market expansion.

3) Key Executives

The iShares Russell 2000 ETF operates within BlackRock’s broader iShares platform structure, where key leadership responsibilities are distributed across various divisions of the organization. The ETF does not maintain its own dedicated executive team but is managed through BlackRock’s integrated investment management platform.

Elise Terry serves as Managing Director and Head of US iShares at BlackRock, having assumed this role in October 2024. Terry previously held the position of Managing Director and Head of iShares US Wealth & Specialist Sales from March 2023 to October 2024, and has been with BlackRock since January 2001 in various sales and relationship management capacities. Her extensive tenure includes roles as Managing Director for National Sales Manager positions across different channels, including Wirehouse and Leveraged Sales divisions.

Samara Epstein Cohen holds the position of Senior Managing Director and Global Head of Market Development at BlackRock, with specific oversight responsibilities for iShares ETF market development activities. Cohen also serves as Chief Investment Officer of iShares and leads the teams focused on delivering market quality and investment integrity across the iShares ETF platform. Her role encompasses managing portfolios across more than 85 markets and 65 countries, with teams positioned globally in major financial centers.

Following recent organizational changes, the iShares business experienced a significant leadership transition when Salim Ramji, who previously served as BlackRock’s global head of iShares and index investments, departed the organization in January 2024. Ramji subsequently joined Vanguard as Chief Executive Officer in July 2024, representing the first externally recruited CEO in Vanguard’s history. His departure was part of a broader management restructuring at BlackRock’s senior leadership level.

The operational management of individual iShares ETFs, including the Russell 2000 ETF, is conducted through BlackRock’s systematic portfolio management teams rather than dedicated fund-specific executives. Portfolio management responsibilities are distributed across BlackRock’s global investment platform, with investment professionals overseeing multiple funds within their respective mandates and expertise areas.

4) Ownership

The iShares Russell 2000 ETF operates as a series of BlackRock ETF Trust, which is domiciled in Delaware and structured as an open-ended investment company under the Investment Company Act of 1940. The fund’s operational structure places it under the direct ownership and management of BlackRock, Inc., the world’s largest asset manager with $12.5 trillion in assets under management as of 2025.

BlackRock’s ownership of the ETF traces back to the firm’s 2009 acquisition of Barclays Global Investors, which included the entire iShares business platform in a transaction valued at $13.5 billion. This acquisition consolidated the iShares Russell 2000 ETF under BlackRock’s comprehensive asset management umbrella, where it benefits from the firm’s integrated risk management systems and global distribution capabilities.

The ETF’s shares are held by a diverse institutional investor base, with over 2,594 institutional holders reporting positions as of the first quarter of 2025, compared to 2,141 holders in the third quarter of 2023. The largest institutional shareholders include Bank of America Corporation with 32.6 million shares (valued at approximately $8.3 billion), representing 12.33% of outstanding shares, followed by Morgan Stanley with 23.2 million shares and Goldman Sachs Group with 25.1 million shares.

Notable changes in the institutional ownership landscape during 2024-2025 included significant position adjustments by major financial institutions. Soros Fund Management LLC completely exited its position, selling 751,800 shares valued at $166.1 million between December 2024 and March 2025. Meanwhile, several institutions increased their holdings substantially, including Susquehanna International Group, which expanded its position by 83% to 6.9 million shares, and Tudor Investment Corp, which established a new 3.7 million share position.

The fund’s ownership structure reflects its publicly traded nature, with shares outstanding of approximately 297.7 million as of December 2025, representing total net assets of $74.9 billion. BlackRock Fund Advisors serves as the investment adviser and receives a management fee of 0.19% annually, while BlackRock Investments, LLC functions as the distributor for the fund. The fund operates without performance fees or capital calls, distinguishing it from traditional private equity structures and maintaining accessibility for both institutional and retail investors through standard brokerage accounts.

5) Financial Position

The iShares Russell 2000 ETF operates as a publicly traded exchange-traded fund with shares trading on NYSE Arca under the ticker symbol IWM, maintaining a closing price of $249.78 as of December 16, 2025. The fund’s market capitalization stands at approximately $75.7 billion based on net assets of $75,709,084,992 and 303,100,000 shares outstanding as of December 16, 2025. The ETF has demonstrated a 52-week trading range of $174.70 to $257.64, with the current price representing a significant recovery from the April 2025 lows.

Over the past year, IWM has achieved a total return of 10.64% on a net asset value basis and 10.73% on a market price basis as of the most recent reporting period. The fund has experienced substantial year-to-date gains of 14.32% through December 16, 2025, significantly outperforming its April 8, 2025 low of approximately $173.85. This performance reflects the broader small-cap equity market recovery that gained momentum throughout the second half of 2025.

The fund’s three-year annualized returns demonstrate resilience through market cycles, achieving 15.08% annually for total returns and maintaining consistent performance relative to its Russell 2000 Index benchmark, which returned 15.21% over the same period. Five-year performance metrics show total returns of 11.43% annualized, while ten-year returns reached 9.70% annually, indicating sustained long-term growth despite periodic volatility. Since inception in May 2000, the fund has delivered annualized returns of 8.05%, representing cumulative gains of 613.06% over its 25-year operating history.

The ETF maintains strong liquidity characteristics with daily trading volumes averaging 46.7 million shares over the past 30 days as of December 16, 2025, ensuring efficient market access for both institutional and retail investors. The fund’s portfolio turnover rate of 18% during the most recent fiscal year reflects the passive indexing strategy and helps minimize transaction costs while maintaining alignment with the underlying Russell 2000 Index.

From a balance sheet perspective, the fund operates with minimal cash holdings, maintaining approximately 0.51% in cash and derivatives as of December 2025, with the remaining 99.49% invested in equity securities across approximately 1,949 individual holdings. The fund’s expense ratio of 0.19% annually provides cost-efficient access to small-cap equity exposure, with management fees representing the primary operational cost structure.

Risk characteristics include a three-year standard deviation of 20.36% and an equity beta of 1.30 relative to the broader market, indicating higher volatility than large-cap indices but consistent with the small-cap asset class profile. The fund’s price-to-earnings ratio of 18.94 and price-to-book ratio of 2.12 as of December 16, 2025, suggest reasonable valuations within the small-cap equity segment.

6) Market Position

The iShares Russell 2000 ETF operates within the highly competitive small-cap ETF market as the second-largest product in its category, maintaining net assets of approximately $75.7 billion as of December 2025. While IWM dominates the small-cap ETF landscape in terms of trading volume and liquidity, it faces significant competitive pressure from lower-cost alternatives that have gained market share through superior fee structures and methodology advantages.

The competitive landscape reveals a clear market share hierarchy among small-cap ETFs. The iShares Core S&P Small-Cap ETF (IJR) maintains the largest asset base at $90.7 billion, surpassing IWM’s assets despite tracking a different and more selective index. Vanguard’s Small-Cap ETF (VB) holds approximately $71.3 billion in assets while charging significantly lower fees at 0.05%, and the Schwab U.S. Small-Cap ETF (SCHA) manages $19.7 billion with an expense ratio of just 0.04%. These cost differentials represent a structural disadvantage for IWM, as its 0.19% expense ratio is substantially higher than most direct competitors.

IWM’s primary competitive advantage lies in its exceptional liquidity characteristics, with daily trading volumes averaging 42.1 million shares, far exceeding competitors like VTWO (2.5 million shares daily) and IJR (5.2 million shares daily). This liquidity superiority enables institutional investors and active traders to execute large transactions with minimal market impact, supporting IWM’s position as the preferred choice for tactical allocation strategies and derivatives-based investment approaches. The fund’s average daily volume of $4.46 billion significantly outpaces the $35.3 million for SCHB and $138.2 million for VT, demonstrating IWM’s dominance in active trading applications.

However, IWM faces meaningful challenges from its underlying index methodology that have contributed to long-term underperformance relative to competing small-cap benchmarks. Analysis indicates that the Russell 2000 Index has lagged the S&P SmallCap 600, CRSP U.S. Small Cap, MSCI USA Small Cap, and Dow Jones U.S. Small Cap indexes by at least 97 basis points annually over trailing 15-year periods through 2019. This persistent underperformance stems from the Russell 2000’s popularity creating significant price pressure during index reconstitution events, combined with the index’s exposure to micro-cap territory and lack of buffering rules to mitigate unnecessary turnover.

The fund’s customer concentration reflects a sophisticated institutional investor base, with over 2,594 institutional holders as of the first quarter of 2025. Major institutional shareholders include Bank of America Corporation (32.6 million shares), Morgan Stanley (23.2 million shares), and Goldman Sachs Group (25.1 million shares), representing substantial validation from large financial institutions. Notable recent activity included Soros Fund Management LLC completely exiting its 751,800 share position valued at $166.1 million between December 2024 and March 2025, while other institutions like Susquehanna International Group expanded holdings by 83% to 6.9 million shares.

From a distribution perspective, IWM benefits from BlackRock’s extensive global distribution network and brand recognition within the iShares family, which encompasses over 1,500 ETFs globally. The fund trades commission-free on major brokerage platforms including Fidelity, enhancing accessibility for retail investors while maintaining institutional-grade operational infrastructure. BlackRock’s integration of the Aladdin investment management platform provides sophisticated risk management and portfolio construction capabilities that support the fund’s index tracking precision.

IWM’s regulatory positioning benefits from its status as a U.S.-domiciled ETF under the Investment Company Act of 1940, providing standard tax reporting through Form 1099-DIV and avoiding classification as a passive foreign investment company (PFIC). This structure offers significant advantages for U.S. investors compared to foreign-domiciled alternatives that may face withholding tax issues or complex reporting requirements. The fund’s operational capabilities include securities lending programs that can generate additional income to offset management fees and daily NAV calculations that ensure accurate pricing throughout trading sessions.

7) Legal Claims and Actions

BlackRock Fund Advisors, the investment adviser to the iShares Russell 2000 ETF, faced significant regulatory enforcement action from the Securities and Exchange Commission in April 2017 for operating violations involving the iShares MSCI Russia Capped ETF. The SEC imposed a $1.5 million penalty against BlackRock Fund Advisors for causing the Russia Fund ETF to operate in violation of Sections 22(d) and 22(e) of the Investment Company Act and Rule 22c-1 from December 2010 through January 2015. The violations included allowing shares to be purchased and sold at prices other than net asset value in the secondary market, selling shares at negotiated prices rather than current public offering prices, and postponing redemption payments beyond the seven-day statutory requirement.

In March 2024, BlackRock Investments, LLC, the distributor for iShares funds, received a cease and desist order from the Mississippi Secretary of State regarding allegedly misleading statements about Environmental, Social, and Governance (ESG) practices. The order alleged that BlackRock made false and misleading statements in fund prospectuses, marketing materials, public statements, and website content regarding the firm’s ESG practices and proxy voting approach. The allegations specifically claimed that BlackRock promoted ESG-focused messaging while simultaneously selling funds described as non-ESG, potentially preventing investors from obtaining a clear understanding of how ESG themes influenced investment decisions across different products. BlackRock exercised its right to request an administrative hearing to contest these allegations.

BlackRock Fund Advisors encountered additional regulatory challenges in 2017 related to political contribution restrictions under the Investment Advisers Act. A senior managing director made a $2,700 contribution to the Governor of Ohio’s presidential campaign, triggering a two-year prohibition on receiving compensation for providing services to government entities under Rule 206(4)-5(a)(1). The firm discovered this violation through internal compliance testing, and the employee subsequently received a refund of the contribution. The financial impact was estimated at approximately $37 million in lost compensation opportunities during the prohibition period.

The investment advisory agreement structure between iShares Trust and BlackRock Fund Advisors specifically excludes litigation expenses from the operating expenses that BlackRock Fund Advisors covers, requiring the funds to bear their own legal costs when litigation matters arise. This arrangement ensures that any legal defense costs related to fund operations or regulatory matters are borne directly by the fund shareholders rather than being absorbed by the investment adviser.

These regulatory matters demonstrate the complex compliance environment facing large asset managers like BlackRock, with enforcement actions spanning investment company operations, political contribution restrictions, and ESG disclosure practices. The violations occurred across different business lines and time periods, indicating ongoing regulatory scrutiny of BlackRock’s various subsidiaries that provide services to the iShares ETF family.

8) Recent Media

The iShares Russell 2000 ETF has been the subject of significant media coverage from 2023 to 2025, largely focusing on its underperformance relative to large-cap indices, substantial investor outflows, and its role as a proxy for sentiment on the broader domestic economy. In 2025, the fund experienced significant outflows, with a reported $5.4 billion pullout for the year as of September 2025, while the underlying index posted a stagnant year-over-year return of -0.57% as of mid-2025. Daily flow data highlights this volatility; on October 27, 2025, the fund recorded a single-day outflow of $988.44 million, while on September 11, 2025, it had attracted a daily inflow of $1.63 billion. The fund’s struggles were attributed to a broader market divergence favoring large-cap stocks, rising concerns about a tariff-induced economic slowdown, and the high proportion of unprofitable companies in the Russell 2000 index, reported to be approximately 40% as of Q3 2025.

Market participants have demonstrated mixed and often bearish sentiment towards the ETF. In April and May 2023, several unusually large, bearish put option trades were reported against IWM, including blocks worth $8.3 million, $12.6 million, and $20.6 million. In early 2025, Soros Fund Management liquidated its entire position of 751,800 shares in IWM, a move that represented a -3.41% impact on its portfolio. Conversely, in the second quarter of a recent year, Duquesne Family Office, the family office of investor Stanley Druckenmiller, established a new bullish position via $72.3 million in call options on IWM.

From an ESG perspective, the fund has received adverse ratings from socially responsible investing analysts. As of October 2025, the fund holds approximately $4.74 billion (6.88% of assets) in 116 fossil fuel stocks, earning it a ‘D’ grade for this category. Additionally, the fund holds $2.74 billion (3.97% of assets) in 39 military weapon stocks, resulting in a ‘D’ grade for military weapon investments; this includes seven holdings in companies involved with nuclear weapons and two in companies involved with controversial weapons. As You Sow, an advocacy group, also assigned the fund ‘F’ grades for gender equality, diversity disclosures, and racial justice based on its portfolio holdings. In November 2025, it was reported that BlackRock loosened weapons screens on $64 billion of its ESG funds, stating the changes reflect tweaks to MSCI indices and client feedback.

The iShares Russell 2000 ETF is named as a defendant in the In Re: Nine West LBO Securities Litigation (1:20-md-02941), a multi-district litigation consolidated in the Southern District of New York. A decision by the United States Court of Appeals for the Second Circuit in this matter was issued in November 2023. BlackRock has also faced a class-action ERISA lawsuit, Baird v. BlackRock, initially filed in 2017, alleging that the firm engaged in self-dealing by populating its own employee 401(k) plan with proprietary funds, including BlackRock Collective Trust Investment (CTI) funds, that charged excessive fees. One of the plaintiffs was invested in the BlackRock Russell 1000 Class F, a BlackRock CTI.

Operational developments for the ETF include the annual FTSE Russell index reconstitution, which concluded on June 27, 2025. This event reshuffled the index’s components, with 236 companies joining the Russell 2000 and 173 departing. As of the reconstitution, the breakpoint between the large-cap Russell 1000 and small-cap Russell 2000 indexes held steady at a market cap of approximately $4.6 billion. In company news, BlackRock’s co-chief investment officer of fundamental equities, Nigel Bolton, announced his retirement in April 2023, set for that summer after nearly four decades in the investment industry.

9) Strengths

Leading Market Position in Small-Cap ETF Space

The iShares Russell 2000 ETF maintains the dominant position in the small-cap ETF market through exceptional trading liquidity, with daily trading volumes averaging 42.1 million shares compared to competitors like VTWO (2.5 million shares daily) and IJR (5.2 million shares daily). This liquidity superiority enables institutional investors and active traders to execute large transactions with minimal market impact, supporting IWM’s position as the preferred choice for tactical allocation strategies and derivatives-based investment approaches. The fund’s average daily volume of $4.46 billion significantly outpaces competitors, demonstrating IWM’s dominance in active trading applications.

Comprehensive Small-Cap Market Exposure

IWM provides unparalleled broad exposure to the U.S. small-cap equity universe, holding approximately 1,949 individual securities across diverse sectors including healthcare (18.08%), financials (17.81%), and industrials (17.47%) as of December 2025. This comprehensive diversification across nearly 2,000 small-cap companies represents approximately 10% of the total U.S. equity market capitalization, offering investors efficient access to the growth potential of smaller companies without the complexity and costs associated with purchasing individual securities. The fund’s broad sector representation ensures balanced exposure to different economic segments while maintaining meaningful diversification benefits.

Established Track Record with Strong Long-Term Performance

With over 25 years of operational history since its May 2000 launch, IWM has demonstrated sustained long-term performance, delivering annualized returns of 8.05% since inception and representing cumulative gains of 613.06% over its operating history. The fund’s three-year annualized returns of 15.08% and five-year returns of 11.43% indicate resilience through market cycles while maintaining consistent performance relative to its Russell 2000 Index benchmark. This lengthy operating track record provides investors with confidence in the fund’s ability to navigate various market environments and economic cycles.

Cost-Efficient Access to Small-Cap Equity Exposure

IWM offers cost-efficient access to small-cap equity exposure with an expense ratio of 0.19% annually, providing investors with a single-ticker solution for gaining diversified exposure to approximately 2,000 small-cap companies. The fund’s cost structure compares favorably to actively managed alternatives while providing the tax efficiency benefits associated with ETF structures, including in-kind redemptions that help minimize taxable distributions to shareholders. The combination of low costs and tax efficiency enhances long-term net returns for investors seeking small-cap exposure.

Strong Institutional Validation and Adoption

The fund benefits from substantial institutional validation, with over 2,594 institutional holders as of the first quarter of 2025, including major financial institutions such as Bank of America Corporation (32.6 million shares), Morgan Stanley (23.2 million shares), and Goldman Sachs Group (25.1 million shares). This extensive institutional adoption demonstrates confidence from sophisticated investors and provides stability to the fund’s asset base. The high level of institutional ownership also supports trading liquidity and helps ensure efficient price discovery in the secondary market.

Integration with BlackRock’s Investment Management Platform

As part of BlackRock’s comprehensive asset management platform, IWM benefits from the firm’s industry-leading risk management expertise and operational infrastructure, including the Aladdin investment management platform that supports portfolio construction and risk analysis. BlackRock’s status as the world’s largest ETF provider with over $3.5 trillion in ETF assets under management provides operational scale advantages and distribution capabilities that enhance the fund’s accessibility and market presence. The integration with BlackRock’s global platform ensures robust operational support and continued product development capabilities.

Accessibility Through Major Distribution Channels

IWM trades commission-free on major brokerage platforms including Fidelity, enhancing accessibility for retail investors while maintaining institutional-grade operational infrastructure. The fund’s listing on NYSE Arca provides continuous trading capabilities during market hours with tight bid-ask spreads, typically just 0.00% as of December 2025. This broad distribution network and trading accessibility make the fund available to a wide range of investor types, from individual retirement accounts to large institutional portfolios.

Regulatory Compliance and Operational Transparency

The fund operates under the Investment Company Act of 1940 as a U.S.-domiciled ETF, providing standard tax reporting through Form 1099-DIV and avoiding classification as a passive foreign investment company (PFIC). This regulatory structure offers significant advantages for U.S. investors compared to foreign-domiciled alternatives that may face withholding tax issues or complex reporting requirements. The fund provides daily transparency of holdings and maintains systematic fair valuation procedures that protect shareholders from potential pricing discrepancies.

10) Potential Risk Areas for Further Diligence

High Expense Ratio Relative to Competitors

The iShares Russell 2000 ETF maintains an expense ratio of 0.19% annually, which represents a significant cost disadvantage compared to direct competitors in the small-cap ETF space. The Vanguard Small-Cap ETF (VB) charges only 0.05%, the Schwab U.S. Small-Cap ETF (SCHA) maintains an expense ratio of 0.04%, and the iShares Core S&P Small-Cap ETF (IJR) charges 0.06%. This fee differential compounds over time, potentially reducing long-term net returns for investors by 10-15 basis points annually compared to lower-cost alternatives. The higher fee structure may become increasingly challenging to justify as fee compression continues across the ETF industry.

Russell 2000 Index Methodology Disadvantages

IWM faces structural disadvantages stemming from its underlying Russell 2000 Index methodology that have contributed to persistent underperformance relative to competing small-cap benchmarks. Analysis indicates that the Russell 2000 Index has lagged the S&P SmallCap 600, CRSP U.S. Small Cap, MSCI USA Small Cap, and Dow Jones U.S. Small Cap indexes by at least 97 basis points annually over trailing 15-year periods through 2019. This underperformance stems from the Russell 2000’s popularity creating significant price pressure during index reconstitution events, combined with the index’s exposure to micro-cap territory and lack of buffering rules to mitigate unnecessary turnover.

Substantial Investor Outflows and Performance Concerns

The fund has experienced significant investor outflows during 2025, with $5.4 billion withdrawn as of September 2025, while the underlying index posted a stagnant year-over-year return of -0.57% as of mid-2025. Daily flow volatility has been extreme, with a single-day outflow of $988.44 million on October 27, 2025, followed by a $1.63 billion inflow on September 11, 2025. These substantial outflows reflect broader market concerns about small-cap vulnerabilities to economic headwinds, rising interest rates, and the high proportion of unprofitable companies in the Russell 2000 index, reported to be approximately 40% as of Q3 2025.

Elevated Small-Cap Volatility and Economic Sensitivity

IWM demonstrates higher volatility characteristics with a three-year standard deviation of 20.36% and an equity beta of 1.30 relative to the broader market, indicating significantly higher risk than large-cap indices. Small-capitalization companies represented in the fund may be less stable and more susceptible to adverse developments, with securities that may be more volatile and less liquid than larger capitalization companies. The fund’s price-to-earnings ratio of 18.94 and exposure to companies with market capitalizations as low as $119.4 million creates concentrated exposure to economic downturns and credit market disruptions.

ESG and Controversial Investment Concerns

The fund holds approximately $4.74 billion (6.88% of assets) in 116 fossil fuel stocks, earning it a ‘D’ grade for this category from ESG rating agencies. Additionally, IWM maintains $2.74 billion (3.97% of assets) in 39 military weapon stocks, resulting in a ‘D’ grade for military weapon investments, including seven holdings in companies involved with nuclear weapons and two in companies involved with controversial weapons. The fund also received ‘F’ grades for gender equality, diversity disclosures, and racial justice based on its portfolio holdings, which may present reputational risks for institutional investors with ESG mandates.

Complex Valuation and Fair Value Pricing Risks

IWM employs systematic fair valuation procedures for portfolio holdings, which may create discrepancies between the vendor price used for reporting and the actual valuation price used for net asset value calculations. The fund values securities using third-party pricing vendors, and the calculated market values may differ significantly if the valuation price were used instead of the vendor price. Foreign currency exchange rate determinations occur at different times for valuation versus vendor pricing (4 PM London versus close of NYSE), potentially creating additional pricing discrepancies that could affect tracking accuracy.

Authorized Participant Concentration Risk

The fund faces concentration risk related to its limited number of Authorized Participants who can engage in creation or redemption transactions directly with the fund. Only institutions with written agreements can act as Authorized Participants, and to the extent that these participants exit the business or cannot proceed with creation and redemption orders, fund shares may be more likely to trade at premiums or discounts to net asset value and potentially face trading halts or delisting. This structural risk could affect liquidity and pricing efficiency during periods of market stress.

Regulatory Compliance and Legal Exposure Risks

BlackRock Fund Advisors has faced significant regulatory enforcement actions, including a $1.5 million SEC penalty in April 2017 for Investment Company Act violations involving ETF operations from December 2010 through January 2015. In March 2024, BlackRock Investments, LLC received a cease and desist order from the Mississippi Secretary of State regarding allegedly misleading statements about ESG practices in fund marketing materials and website content. These regulatory matters demonstrate ongoing compliance challenges that could result in additional penalties or operational restrictions affecting the fund’s management.

Industry Concentration and Sector-Specific Risks

The fund maintains significant concentration in financial services companies (17.81% of portfolio), healthcare companies (18.08%), and industrial companies (17.47%) as of December 2025. Financial services companies face extensive governmental regulation and intervention, interest rate sensitivity, and exposure concentration risks. Healthcare companies may be adversely affected by government regulations, pricing pressure, patent expirations, and product liability claims. Industrial companies face supply chain disruptions, product obsolescence, cyber attacks, trade disputes, and commodity price volatility.

Standard Small-Cap Industry Considerations

Small-cap investing inherently involves elevated risks including higher failure rates among smaller companies, reduced analyst coverage creating information asymmetries, and greater sensitivity to economic cycles and credit availability. The Russell 2000 universe includes a substantial proportion of unprofitable companies that rely on external financing for operations, making the segment particularly vulnerable to rising interest rates and tightening credit conditions. Market leadership rotation away from small-caps during technology-driven bull markets can result in extended periods of underperformance relative to large-cap indices.

Sources

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