Over the last three and six months, small- and mid-cap exchange traded funds (ETFs) have been leaving those large-caps in the dust.
Perhaps one of the clearest signs that it’s a small-cap’s market these days can be seen in energy. PowerShares S&P SmallCap Energy Portfolio (NYSEArca: XLES) is up 52.2% in the last six months, outperforming the next-best performing energy ETF – First Trust Energy AlphaDEX (NYSEArca: FXN), which is up 37.8% in the same time period – by 38%.
Energy small-caps aren’t alone; financial small-caps have also done decently, reports Angela Moon for Reuters. Financial Select Sector SPDR (NYSEArca: XLF) is up 9.4% in the last six months, while PowerShares S&P SmallCap Financials (NYSEArca: XLFS) is up nearly 14% in the same period.
Laura Reeves for World News Heard Now points out that fast growing but non-established companies tend to perform well during the early stages of a rally and small-cap stocks surge in the first twelve months of a bull market. The downside risk here is that small companies are more swayed by financial panics. [Micro-Cap ETFs: Good Things, Small Package.]
Smaller firms historically do better, especially coming out of recoveries, because they’re more nimble and quick to react to changes in market conditions. These firms also aggressively reduced costs in the bad times to improve their bottom line. It is expected that small companies will show growth of more than 133% by the year’s end, or triple that of large-caps.