Exchange-traded funds (ETFs) are increasingly popular among both individual and institutional investors. In the U.S. equity ETF market, assets under management reached $6.3 trillion last year, as reported by Morningstar. However, small-cap ETFs only represented a small portion of this total.
Despite this, small-cap stocks had a good year, with the S&P SmallCap 600 Index and the Russell 2000 Index showing gains of 16.1% and 16.9% respectively. While these numbers are impressive in many years, they were overshadowed by the S&P 500 Index, which had a total return of 26.3%.
Over the past decade, smaller capitalization stocks have been the third-best performing asset class, with an annual increase of 8.6% through 2023, trailing only mid caps and large caps. However, in 2024, small-cap stocks have been lagging behind larger stocks due to delays in anticipated interest rate cuts by the Federal Reserve. Smaller companies tend to rely more on debt and consumer spending, which can be impacted by interest rate hikes.
Recent U.S. employment and inflation data suggest that the wait could soon be over for small-cap investors, providing them with potential opportunities. DailyBubble recommends keeping an eye on six small-cap ETFs that meet specific criteria, including net assets of at least $500 million, expenses of 0.60% or less, a mix of passive and active management, and geographical diversification.
Overall, small-cap ETFs may offer potential growth opportunities for investors, especially as economic conditions continue to evolve. It’s important for investors to stay informed and consider diversifying their portfolios with a mix of small-cap and large-cap investments.