Much of this year’s small-cap conversation has centered around the Russell 2000’s lagging of the S&P 500 and NASDAQ Composite.
All that lagging caught up with the Russell 2000 and the iShares Russell 2000 ETF (NYSEArca: IWM) as the ETF and the index it tracks formed what technical analysts call a “death cross” where the near-term 50-day moving average dips below its long-term 200-day moving average. [Death Cross for Small-Cap ETF]
Investors have not been too fussed on small-caps this year. That much is highlighted by the nearly $2.1 billion pulled from IWM, a number exceeded by just four ETFs. During the current quarter, IWM has shed $534.1 million in assets. All that is understandable. With a term like “death cross” floating around, investors are apt to thing the worst is right around the corner.
When comes to the Russell 2000 and IWM, history has proven the opposite is true. While the near-term performance of the Russell 2000 after it makes a death cross is usually bleak, patient investors are rewarded with solid post-death cross returns.
“Going back to 2000, there have been nine instances where the 50-day moving average fell below the 200-day moving average. The average and median return going out one year are 11% and 15% respectively, not exactly bearish,” notes Ritholtz Wealth Management Research Director Michael Batnick.