In the latest series of record highs by large-cap peers, small caps started to show their momentum and are trying to catch up. The Russell 2000 Index hit a new 52-week high, signaling that the latest rally is broad-based. With this, the benchmark is up nearly 6% in a year.
However, the benchmark is lagging its large-cap brethren and is still below nearly 7% from its all-time high set on Aug 31, 2018. The three major stock indexes of Wall Street — the Dow Jones, the S&P 500 and the Nasdaq Composite — have hit a new all-time high several times this month. From a one-year look, Nasdaq Composite have been outperforming with nearly 18% gains, followed by 13.8% for the S&P 500 and 10.1% for the Dow Jones (read: 5 Sector ETF Winners Amid Small-Cap Earnings Underperformance).
Investors should note that easing monetary policy and the prospect of renewed economic growth have been the biggest catalysts for the small-cap rally. The central bank has slashed interest rates three times this year to sustain a decade-long economic expansion. Lower interest rates bode well for the small-cap stocks, perking up economic activities and resulting in higher spending, thus boosting domestically focused companies.
A spate of better-than-expected data added to the strength. This is especially true as October retail sales have rebounded from a sluggish September and American consumers remain willing to spend, which is good news for domestic economic growth. Additionally, the manufacturing activity in the United States also showing signs of improvement with IHS Markit’s widely followed U.S. manufacturing index, moving off its August lows. Increase in inflation, higher consumer and business confidence, retail sales, and strong recovery in the U.S. housing market also underscore the strength of the economy. The pint-sized stocks generally outperform in an improving American economy.
If these weren’t enough, small-cap stocks are valued at attractive levels relative to large caps. This has presented investors with a big buying opportunity for the long haul (see: all the Small Cap ETFs here).
Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs & stocks that have easily crushed the Russell 2000 Index in a year and are likely to continue their strong performance.
VanEck Vectors Junior Gold Miners ETF (GDXJ - Free Report)
GDXJ tracks the MVIS Global Junior Gold Miners Index, which measures the performance of small-capitalization companies that are involved primarily in the mining for gold and/or silver (read: Gold ETFs: Leader or Laggard?).
Zacks ETF Rank: NA
AUM: $4.6 billion
Expense Ratio: 0.53%
1-Year Return: 39.2%
ETFMG Prime Junior Silver Miners ETF (SILJ - Free Report)
This ETF provides direct exposure to the silver mining exploration and production industry and follows the Prime Junior Silver Miners & Explorers Index.
Zacks ETF Rank: NA
AUM: $106.9 million
Expense Ratio: 0.69%
1-Year Return: 36.8%
ALPS Clean Energy ETF (ACES - Free Report)
The fund seeks to track the performance of an index comprising U.S. and Canad-based companies that primarily operate in the Clean Energy sector.
Zacks ETF Rank: NA
AUM: $101 million
Expense Ratio: 0.65%
1-Year Return: 32.5%
Vanguard Small-Cap Growth ETF (VBK - Free Report)
This ETF offers exposure to the growth segment of small-cap stocks by tracking the CRSP US Small Cap Growth Index.
Zacks ETF Rank: #2 (Buy)
AUM: $9.5 billion
Expense Ratio: 0.07%
1-Year Return: 20.1%
ALPS Medical Breakthroughs ETF (SBIO - Free Report)
This fund provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index (read: Healthcare Sector Outperforming: 5 Best ETFs & Stocks QTD).
Zacks ETF Rank: #3 (Hold)
AUM: $190.1 million
Expense Ratio: 0.50%
1-Year Return: 20%
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