Small-Cap ETFs Pick Up Speed Ahead Of Seasonally Strong Period

Small-capitalization stocks and related exchange traded funds have been outperforming other asset categories and could maintain their strength going into a historically strong period for smaller stocks.

The iShares Russell 2000 ETF (NYSEArca: IWM) was up 1.4% over the past week and 6.3% higher over the past month. In comparison, the SPDR S&P 500 ETF (NYSEArca: SPY) gained 0.8% over the past week and 5.4% over the past month. Nevertheless, small-cap stocks remain relatively flat so far this year, rising 3.3% year-to-date, compared to SPY’s 13.7% return so far this year.

Over the next three months, the market is heading toward a strong period for the Russell 2000, particularly against the S&P 500, reports Lawrence Lewitinn for Yahoo! Finance.

Ari Wald, head of technical analysis at Oppenheimer & Co., has found that since 1979, the small-cap Russell 2000 averaged over 1 percentage point higher returns in December than the large-cap benchmark.

Additionally, Wald discovered that in December through February, the Russell 2000 experienced its strongest months of outperformance relative to the S&P 500. Some may also know the outperformance phenomenon as the so-called January effect where U.S. small-caps typically outperform larger stocks in January. [Familiar Small-Cap ETF Rebounds]

“That at least mitigates some of the trend concerns that we’re seeing,” Wald said. “They could start to perform in line with big caps.”

Jeffrey Hirsch, editor of the Stock Trader’s Almanac, also pointed out that between 1974 and 2012, a portfolio of small-cap stocks that touched their 52-week lows in mid-December would then outperform the NYSE Composite Index “by an average 9.5 percentage points (not annualized!) per year between late December and the January/February period” in 33 out of the 38 years, reports Howard Gold for MarketWatch.