The Case for the Small-Cap Rally and ETFs | ETF Trends

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.

  • iShares Russell 2000 Index Fund (NYSEArca: IWM)

  • iShares S&P SmallCap 600 (NYSEArca: IJR)

  • Vanguard Small-Cap ETF (NYSEArca: VB)

  • WisdomTree SmallCap Earnings (NYSEArca: ees)

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.