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Small caps was one of the most beaten-down zones in the coronavirus selloff, but sprung back to life in April. Small-cap index Russell 2000 lost 17.5% in the past three months (as of Apr 29, 2020) while it surged 26.9% past month. The last five days were especially meaningful with Russell 2000 adding a stellar 13.3% gain (as of Apr 29, 2020).
In comparison, the S&P 500, which is down 10% in the past three months, has advanced about 19% past month and gained 5% in the past five days. Not only the Russell 2000, theS&P Small Cap 600 Index (up 26.3%) too has beaten the S&P 500 in the past month. The S&P Small Cap 600 Index has added a stellar 14.9% past week.
Coronavirus-led lockdowns and shutting down of businesses are causing a severe cash crunch among companies. Small caps with a weak balance sheet have faced the crisis even more. However, a more compelling valuation, relative underperformance compared to the large caps, a super-dovish Fed and the U.S. government’s gigantic aid to help small-and-mid-sized companies amid coronavirus have been driving the small-cap cohort lately.
Inside the Surge
Since small-cap stocks are more closely tied to the domestic economy, President Trump’s guidelines on Apr 16 to help states ease their social distancing controls favored the segment a lot. Improving virus cases and the latest hopes of coronavirus treatment mainly from Gilead Sciences (GILD - Free Report) acted as the other tailwinds.
Small caps also gained on massive monetary and fiscal stimulus. In early April, the Fed announced an investment of up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments and the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities. The Fed’s Main Street Lending program can be considered as a plus for pint-sized stocks (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).
The U.S. government’s virus relief bill also supported small-cap stocks. There was already a $349 billion forgivable loan program in place. The loans at issue were being made through the Paycheck Protection Program, which offers up to $10 million in forgivable loans to businesses with 500 or fewer employees.
Plus, the government recently approved the extension of the Paycheck Protection Program, which is called Phase 3.5. The program increases the PPP by an additional $321 billion. Plus, it has extra funding for disaster relief, hospitals and testing.
Wining ETFs
Against this backdrop, we highlight a few small-cap ETFs that beat the S&P 500 in the past one month (as of Apr 29, 2020) (see all small-cap ETFs here).
First Trust Small Cap Core AlphaDEX Fund (FYX - Free Report) — Up 23.2%
WisdomTree U.S. SmallCap Earnings Fund (EES - Free Report) — Up 22.4%
Image: Bigstock
5 Small-Cap ETFs Beating S&P 500 in April
Small caps was one of the most beaten-down zones in the coronavirus selloff, but sprung back to life in April. Small-cap index Russell 2000 lost 17.5% in the past three months (as of Apr 29, 2020) while it surged 26.9% past month. The last five days were especially meaningful with Russell 2000 adding a stellar 13.3% gain (as of Apr 29, 2020).
In comparison, the S&P 500, which is down 10% in the past three months, has advanced about 19% past month and gained 5% in the past five days. Not only the Russell 2000, theS&P Small Cap 600 Index (up 26.3%) too has beaten the S&P 500 in the past month. The S&P Small Cap 600 Index has added a stellar 14.9% past week.
Per a MarketWatch article, the Russell 2000 is on track to match the record for the longest streak of gains of at least 1%. The only time the Russell 2000, had such six successive days of at least 1% gain was back in January 2000 (read: Optimism Back in Wall Street? ETFs Areas to Win the Most).
Coronavirus-led lockdowns and shutting down of businesses are causing a severe cash crunch among companies. Small caps with a weak balance sheet have faced the crisis even more. However, a more compelling valuation, relative underperformance compared to the large caps, a super-dovish Fed and the U.S. government’s gigantic aid to help small-and-mid-sized companies amid coronavirus have been driving the small-cap cohort lately.
Inside the Surge
Since small-cap stocks are more closely tied to the domestic economy, President Trump’s guidelines on Apr 16 to help states ease their social distancing controls favored the segment a lot. Improving virus cases and the latest hopes of coronavirus treatment mainly from Gilead Sciences (GILD - Free Report) acted as the other tailwinds.
Small caps also gained on massive monetary and fiscal stimulus. In early April, the Fed announced an investment of up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments and the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities. The Fed’s Main Street Lending program can be considered as a plus for pint-sized stocks (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).
The U.S. government’s virus relief bill also supported small-cap stocks. There was already a $349 billion forgivable loan program in place. The loans at issue were being made through the Paycheck Protection Program, which offers up to $10 million in forgivable loans to businesses with 500 or fewer employees.
Plus, the government recently approved the extension of the Paycheck Protection Program, which is called Phase 3.5. The program increases the PPP by an additional $321 billion. Plus, it has extra funding for disaster relief, hospitals and testing.
Wining ETFs
Against this backdrop, we highlight a few small-cap ETFs that beat the S&P 500 in the past one month (as of Apr 29, 2020) (see all small-cap ETFs here).
First Trust Small Cap Core AlphaDEX Fund (FYX - Free Report) — Up 23.2%
WisdomTree U.S. SmallCap Earnings Fund (EES - Free Report) — Up 22.4%
Invesco S&P SmallCap 600 Revenue ETF (RWJ - Free Report) — Up 21.9%
Vanguard Small Cap Growth ETF (VBK - Free Report) — Up 21.1%
iShares Morningstar Small-Cap Growth ETF — Up 20.8%
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