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Small Caps Enjoy Longest Run Since 1995: 5 ETF Winners

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Small-cap stocks are on a tear in post-pandemic recovery with the Russell 2000 enjoying the longest streak of monthly win since 1995. This is because the index has been up for eight consecutive months.

With millions of Americans now fully vaccinated and pandemic restrictions being rolled back, the U.S. economy is strongly recovering from the pandemic lows. The economy expanded 6.4% annually in the first quarter, representing the second-strongest increase since 2003 and is expected to top 7% this year, which would be the fastest since 1984, per several economists. This would follow the 3.5% contraction in 2020, which was the worst performance in 74 years. The huge infrastructure package and expanded stimulus are among the major catalysts for the economy that will continue to drive the stocks higher.

Additionally, the bouts of latest data also instilled confidence in economic growth. U.S. manufacturing activity hit a record-high in May for the second straight month supported by stronger expansions in output and new orders. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago, sharply higher than the March reading of 1.9% and marking the highest reading since 1992.

The combination of all the factors is leading to pent-up demand resulting in higher demand for all types of products and services in the economy. As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. These pint-sized stocks generate most of their revenues from the domestic market, making them great choices during an uptrend. A low interest rate also bodes well for small-cap stocks as it pushes up economic activities and results in higher spending, thus boosting the domestically focused companies (read: Here's Why Small-Cap ETFs Are Looking Great Buys Now).

Further, concerns over rising inflation and lofty valuations in growth tech stocks have compelled investors to bet on the areas like small caps, which are poised to perform well amid an economic rebound. However, a rise in Treasury yields could impede the rally as rising borrowing costs could hurt small-cap businesses.

Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs that are easily crushing the Russell 2000 Index this year and should continue their strong performance at least in the near term.

Invesco S&P SmallCap Energy ETF (PSCE - Free Report) – Up 73.8%

This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 32 stocks in its basket with AUM of $159 million. The fund trades in an average daily volume of 749,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 4 Sector ETFs That Gained Double Digits in a Volatile May).

Invesco S&P SmallCap Value with Momentum ETF (XSVM - Free Report) – Up 55%

This fund offers exposure to the companies having the highest "value scores" and "momentum scores" by tracking the S&P 600 High Momentum Value Index. It holds a basket of 119 stocks with AUM of $322.8 million and an average daily volume of 100,000 shares. Consumer discretionary and industrials take the largest share at 30.1% and 20.1%, respectively, while financials round off the next spot with a double-digit exposure. The ETF charges 39 bps in annual fees.

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report) – Up 49.2%

The fund targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 90 securities in its basket with specialty retail taking the largest share at 36.8% while household durables, hotels, restaurants and leisure, and auto components account for a double-digit exposure each. The product has attracted $144 million in AUM and charges 29 bps in annual fees. It trades in an average daily volume of 20,000 shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Invesco S&P SmallCap 600 Pure Value ETF (RZV - Free Report) – Up 47.7%

This fund provides exposure to the pure value segment of the small-cap market by tracking the S&P SmallCap 600 Pure Value Index. It has a well-diversified portfolio of 168 stocks with key holdings in sectors like financials, industrials, consumer discretionary and materials. The product has been able to manage $375.2 million in its asset and charges 35 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a High risk outlook (read: 5 Great Value ETFs to Buy as Inflation Fears Grip Markets).

Amplify Seymour Cannabis ETF (CNBS - Free Report) – Up 46%

With AUM of $143.1 million, CNBS is actively managed and invests 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. The fund holds 33 securities and charges 75 bps in annual fees. It trades in an average daily volume of 129,000 shares.

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