The Test Bench › index_rule

Does Russell 2000 small-cap (IWM) actually work?

DEAD

No edge left once tested on a fair footing.

The claim

Russell 2000 small-cap is the index to own — What people actually buy

What we did

Tested against Cap-weight S&P 500, buy & hold, 2004-2026, buy & hold, adjusted total-return.

The result

Result: 9.1 %/yr buy & hold (2004-2026)

+9.1%/yr, Sharpe 0.49, worst drawdown -59% (2008 -34%, 2022 -20%)

Verdict

The famous 'small-cap premium': absent. Worst risk-adjusted return of every index here (Sharpe 0.49), no return edge to compensate. Small caps were a worse deal, not a better one.

What the test did and did not do

survivorship-free universe
net of real costs
tested out of sample
point-in-time data
checked for look-ahead

Almost nobody publishing a backtest says which of these they did. We list the ones we failed as well as the ones we passed.

Tested 2026-06-23. The same treatment, applied to every other system, is on the test bench.

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Written with AI assistance from our own test database. The numbers are computed, not composed.
General market commentary for education, not personalised investment advice. Backtested results are hypothetical. Trading carries a real risk of loss.