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5 Best Small-Cap ETFs as Russell 2000 Tops S&P 500 YTD

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Wall Street bulls are flexing their muscles to close out the year 2020 with the key large-cap U.S. indexes hovering around record highs. The S&P 500 Index is up 12.9% despite the coronavirus fear. However, the small-cap Russell 2000 Index (up 17.5%) outperformed its peer equity gauges S&P 500 (up 12.9%) and the Dow Jones (up 4.6%).

Here's Why Small-Caps Are Rallying

Start of Vaccination

Since small-cap stocks are more closely tied to the domestic economy, shots of the Pfizer-BioNTech coronavirus vaccine bode well for the small-cap stocks.Notably, the United States administered its first shots of the COVID-19 vaccine on Dec 14.

Fiscal Stimulus on the Way

U.S. lawmakers set forth another economic relief package on Dec 14, which sees the division of the previously proposed $908 billion bipartisan stimulus package into two parts. A first bill of $748 billion would be for spending on programs that are favored by both Democrats and Republicans, while the second $160 billion bill is meant for state and local aid.

Dovish Fed & Decent GDP Growth

The Fed has also indicated that it will not hike rates until 2023. Low rates are especially beneficial for the pint-sized stocks. With the U.S. third-quarter GDP growth data coming in at 33.1%, small-size stocks should get another reason to outperform heading into 2021 as it means that the economy is on track for post-COVID recovery. 

Growth estimates for the fourth quarter are expected below a 5% annualized rate. Despite upbeat developments on vaccines, rising COVID-19 infections have led economists to sharply lower their GDP growth forecasts for the first quarter of 2021.

Biden’s Win in Election

Joe Biden is proposing comprehensive new uses of the federal government’s regulatory and spending power to bolster U.S. manufacturing and technology firms (read: Trump or Biden, Small-Cap Stocks & ETFs to Gain).

If this was not enough, an economic forecast by Moody's indicated that a Biden presidency would generate seven million more jobs compared to a second Trump term, as quoted on Business Insider

Wining ETFs

Against this backdrop, below we highlight a few small-cap ETFs that have gained considerably this year and breezed past the S&P 500.

iShares Morningstar Small-Cap Growth ETF – Up 38.0%

Sprott Junior Gold Miners ETF (SGDJ - Free Report) – Up 37.6%

Vanguard Russell 2000 Growth ETF (VTWG - Free Report) – Up 30.3%

Vanguard Small Cap Growth ETF (VBK - Free Report) – Up 30.1%

iShares Russell 2000 Growth ETF (IWO - Free Report) – Up 29.8%

Amplify Seymour Cannabis ETF (CNBS - Free Report) – Up 28.9%

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