Many exchange traded fund investors are indexing purists familiar with the research released by Eugene Fama and Kenneth French in the 1990s showing that small-cap value stocks tend to outperform the broader markets over longer time periods.
The phenomenon is known as the small-cap value premium.
The iShares S&P Small Cap 600 Value Index Fund (NYSEArca: IJS) is up 12.5% year to date, compared with an 8.6% gain for the S&P 500.
The improved outlook on the Eurozone financial status has helped investors feel less anxious over riskier equity picks, especially in small capitalization stocks. Additionally, the better-than-expected string of U.S. economic data has boosted confidence in U.S. stocks. [Small-Cap ETFs are Leading the Rally]
Decades of historical data and academic research indicate that small-cap value stocks tend to generate higher returns over the long-run, especially during the start of a bullish run when the smaller, more nimble companies take charge. However, potential investors need to be aware that this asset class may show larger swings in volatility. [ETF Chart of the Day: Small-Cap Growth]