Exchange traded funds (ETFs) that focus on small-cap stocks have done well this year despite warnings that the trend is shifting to big-caps.  Although the big-cap index, S&P 500 outperformed the small-cap index, Russell 2000 the last three quarters of 2006, it might be too soon to count out small-caps.  iShares Russell 2000 (IWM) is up 2.7% this year, while the SPDR (SPY) is up 1.2%.

John J. Curran of CNN Money.com reports small-caps’ hour has not yet run out, the game has just changed. Back in 2001, the start of the run, the sector was full of amazing bargains, some 60% below the multiple on big-caps.  The discount days are gone, but that doesn’t mean they should be ignored.  Keep in mind small-caps are not dangerously overvalued and big-cap stocks may disappoint on profits.

For full disclosure, some of Tom Lydon’s clients own IWM.

Tags: Small-Cap