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Is It the Right Time to Bet on Small-Cap ETFs? Let's Explore
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Wall Street has been rallying in February so far amid the wave of optimism surrounding the coronavirus vaccine rollout and high chances of another round of fiscal stimulus. Notably, the Dow Jones Industrials Average has climbed 5.1% in the month to date. Besides, the other two broader indices including the S&P 500 and the Nasdaq composites have gained 4.4% and 3.5%, respectively, in the same period.
Notably, outperforming these broad indices, the small-capitalization Russell 2,000 Index rose 8.6%. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to outshine when the economy improves.
It is also believed that wider coronavirus vaccine rollouts are making a strong case in favor of a faster U.S. economic recovery in 2021. Following a strong winter storm that disturbed the logistics, the White House issued a statement that it projects to dispatch millions of delayed coronavirus vaccine deliveries this week, according to a CNBC article.
President Joe Biden is expected to ramp up the distribution of coronavirus vaccines by dispensing more funds to the local and state officials, increasing the number of vaccination sites and introducing a nationwide education campaign, per a CNBC article.
Moreover, positive developments pertaining to discussions on providing an additional stimulus are raising hopes of a speedy U.S. economic rebound. According to Speaker Nancy Pelosi, the House of Representatives is planning to get the $1.9-trillion coronavirus stimulus plan approved before the end of February, per a CNBC article. Going by the same report, the Democratic Congressional leaders may attempt to get the package approved without taking votes from Republicans.
However, concerns over the rising U.S. treasury yields and possibilities of inflation are keeping investors on edge of late. The yield on the benchmark 10-year Treasury note climbed to a one-year high of 1.36% last week and ended the week at 1.34%, according to a Reuters article.
It is worth noting that many market experts believe that the increasing bond yields also highlight the buoyed optimism of investors regarding faster U.S. economic recovery and therefore, the stock market will keep rallying amid support from a solid corporate earnings environment, per a CNBC article.
Further, according to the same CNBC article, Keith Lerner, chief market strategist at Truist said that “we do not see the recent increase in yields as a threat to the bull market. Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities”.
Red-Hot Small-Cap ETFs to Consider
For investors seeking to capitalize on this opportunity, the following small-cap ETFs could be strong pure plays:
This fund follows the CRSP US Small Cap Growth Index. The product managed assets worth $15.94 billion, and charges 7 basis points (bps) in annual fees and expenses. The fund currently sports a Zacks ETF Rank #1 (Strong Buy) with a Medium-risk outlook (read: 5 Top-Ranked ETFs That Investors Can Bet On).
This fund tracks the Russell 2000 Growth Index and offers exposure to small-cap companies that have earnings growth expectations above average rate relative to the market. The product managed assets worth $13.18 billion and charges 24 bps in annual fees and expenses. The fund presently flaunts a Zacks ETF Rank of 1 with a High-risk outlook (read: 5 Best ETF Investing Ideas for 2021).
This product tracks the S&P SmallCap 600 Growth Index. The product managed assets worth $6.62 billion and charges 18 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1 with a Medium-risk outlook
This ETF follows The S&P SmallCap 600 Growth Index, which comprises stocks that exhibit the strongest growth characteristics based on sales growth, earnings change to price and momentum. The product managed assets worth $2.32 billion and charges 15 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1 with a Medium-risk outlook
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Is It the Right Time to Bet on Small-Cap ETFs? Let's Explore
Wall Street has been rallying in February so far amid the wave of optimism surrounding the coronavirus vaccine rollout and high chances of another round of fiscal stimulus. Notably, the Dow Jones Industrials Average has climbed 5.1% in the month to date. Besides, the other two broader indices including the S&P 500 and the Nasdaq composites have gained 4.4% and 3.5%, respectively, in the same period.
Notably, outperforming these broad indices, the small-capitalization Russell 2,000 Index rose 8.6%. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to outshine when the economy improves.
It is also believed that wider coronavirus vaccine rollouts are making a strong case in favor of a faster U.S. economic recovery in 2021. Following a strong winter storm that disturbed the logistics, the White House issued a statement that it projects to dispatch millions of delayed coronavirus vaccine deliveries this week, according to a CNBC article.
President Joe Biden is expected to ramp up the distribution of coronavirus vaccines by dispensing more funds to the local and state officials, increasing the number of vaccination sites and introducing a nationwide education campaign, per a CNBC article.
Moreover, positive developments pertaining to discussions on providing an additional stimulus are raising hopes of a speedy U.S. economic rebound. According to Speaker Nancy Pelosi, the House of Representatives is planning to get the $1.9-trillion coronavirus stimulus plan approved before the end of February, per a CNBC article. Going by the same report, the Democratic Congressional leaders may attempt to get the package approved without taking votes from Republicans.
However, concerns over the rising U.S. treasury yields and possibilities of inflation are keeping investors on edge of late. The yield on the benchmark 10-year Treasury note climbed to a one-year high of 1.36% last week and ended the week at 1.34%, according to a Reuters article.
It is worth noting that many market experts believe that the increasing bond yields also highlight the buoyed optimism of investors regarding faster U.S. economic recovery and therefore, the stock market will keep rallying amid support from a solid corporate earnings environment, per a CNBC article.
Further, according to the same CNBC article, Keith Lerner, chief market strategist at Truist said that “we do not see the recent increase in yields as a threat to the bull market. Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities”.
Red-Hot Small-Cap ETFs to Consider
For investors seeking to capitalize on this opportunity, the following small-cap ETFs could be strong pure plays:
Vanguard Small-Cap Growth ETF (VBK - Free Report)
This fund follows the CRSP US Small Cap Growth Index. The product managed assets worth $15.94 billion, and charges 7 basis points (bps) in annual fees and expenses. The fund currently sports a Zacks ETF Rank #1 (Strong Buy) with a Medium-risk outlook (read: 5 Top-Ranked ETFs That Investors Can Bet On).
iShares Russell 2000 Growth ETF (IWO - Free Report)
This fund tracks the Russell 2000 Growth Index and offers exposure to small-cap companies that have earnings growth expectations above average rate relative to the market. The product managed assets worth $13.18 billion and charges 24 bps in annual fees and expenses. The fund presently flaunts a Zacks ETF Rank of 1 with a High-risk outlook (read: 5 Best ETF Investing Ideas for 2021).
iShares S&P Small-Cap 600 Growth ETF (IJT - Free Report)
This product tracks the S&P SmallCap 600 Growth Index. The product managed assets worth $6.62 billion and charges 18 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1 with a Medium-risk outlook
SPDR S&P 600 Small Cap Growth ETF (SLYG - Free Report)
This ETF follows The S&P SmallCap 600 Growth Index, which comprises stocks that exhibit the strongest growth characteristics based on sales growth, earnings change to price and momentum. The product managed assets worth $2.32 billion and charges 15 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1 with a Medium-risk outlook
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>