Why Small-Cap ETFs Are Outperforming

March 17th at 3:00pm by Tom Lydon

Small-cap and micro-cap exchange traded funds (ETFs) have been following the path woven for them by market history: they have been leaving large-caps in the dust.

The outperformance of smaller and lower-quality stocks is typical in the first year of a bull market, and as the global economy struggles to rid itself out of this recession, this trend could remain in place. John Spence for MarketWatch reports that small-caps tend to beat large caps as cyclical sectors outperform defensive ones. [Next Up: Small-Cap Sector ETFs.]

No one can say whether the rally will continue, or for how long, but you can’t ignore numbers like these:

In last three months, small-caps are up about 13% while large-caps are up about 4%
In the last six months, small caps are up about 15% and large caps are up about 10%

Consider this about small-caps, too: the largest companies in the United States today – the Googles, the Microsofts, the Home Depots – they all had to start somewhere. They were once small, and they got big. You never quite know who will be the next large-cap, though, so check out ETFs for broad exposure to the top small stocks and play them all. [The Case for Small-Caps in 2010.]

For more stories about small caps, visit our small cap category.