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 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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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