The Case for the Small-Cap Rally and ETFs

May 7th at 2:00pm by Tom Lydon

Small-cap companies have been on a stunning rally for the last decade, beating large-caps for all but one year since 2000. Not everyone is convinced, though. Should you be looking at small-cap exchange traded funds (ETFs) or shunning them?Some market watchers suggest that now is the time for investing in small-cap shares and ETFs. Others, such as a recent article from MarketWatch, claim that there is a case against buying this asset class for now and that too many investors are chasing a “hot” corner of the market.

Stock Blog Hub counters the assertions with a few points:

Small-caps have risen too fast, too soon: 90% of the time, small-caps outperform large-caps coming out of a recession. Stock Bog Hub reminds us that this is exactly what everyone said about the current bull market in April last year. And that was after a mere 20% rebound off the bottom. [Why Small-Cap ETFs are Rallying.]
Ignore the trends: According to MarketWatch, the old trend following Wall Street adage no longer applies because small-caps have performed too well for too long. Trend following is one of the best ways to enhance a solid investment strategy and we always say it: you can’t fight the trend. It’s there.
Average investors don’t know much: One of the biggest objections to MarketWatch’s article is this: It assumes the average investor is an idiot. We know that is absolutely not true. From our dealings with readers, we know they’re incredibly smart and well-informed. [Your Small-Cap ETF Guide.]

If you want to invest in small-caps, but you’re feeling like this rally is overdone, you don’t need to worry. Having a stop-loss point will help protect you on the downside – just be sure that you use it! [How to Implement a Stop-Loss.]

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