After the dust settled, small-capitalization stock exchange traded funds, previously the worst performing asset class category, are leading the market rebound, with heavy investment inflows fueling gains.

The iShares Russell 2000 ETF (NYSEArca: IWM) attracted $2.93 billion in net asset inflows for the week, more than triple the next best ETF asset gains in the Energy Select Sector SPDR (NYSEArca: XLE), which added $766.1 million, reports Jeff Cox for CNBC. [Volatile Market Sends Investors to Some Familiar ETFs]

Since the October 15 low, IWM jumped as high as 5.0% by early Friday. Small-caps rallied after crossing into correction territory – down over 10% from its most recent high. In comparison, the S&P 500 increased 4.1% since the Wednesday low. [ETF Chart of the Day: Small-Caps Outperforming?]

Market observers argue that several factors helped fuel the quick rebound in small-caps. For instance, the asset category looked cheap after drudging through a large autumn discount. Global investors also turned back to U.S. markets in light of the ongoing weakness overseas, notably in Europe.

Moreover, some may be regaining their risk appetite as economic data still remains positive. [Picking up a Small-Cap ETF After The Fall]

“With the tailwind of strong, resilient, US economic data (jobless claims, manufacturing) small caps are now finally outperforming large caps in the stock market, high yield is outperforming investment grade and interest rates ended (Thursday) modestly higher,” Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, said in a note. “These developments are encouraging and support our view that the financial markets’ reaction to global weakness is overdone.”

David Rosenberg, economist and strategist at Gluskin Sheff, also argues that the positive moves in the small-cap space should calm market fears about possible weakness in U.S. equities.

Showing Page 1 of 2