Small-cap exchange traded funds that track the value style are finally beginning to pull ahead after underperforming this year.
Small-cap stocks have largely underperformed this year, with IWM down 2.3%, compared to SPY’s 3.0% gain. However, as we head into a new year, it may finally be time for small-caps to push ahead.
Observers argue that due to their domestic focus, small-caps could be better insulated from macroeconomic forces ahead, such as a strengthening U.S. dollar and slowing Chinese growth, that could affect their larger peers, writes Dan Strumpf for the Wall Street Journal.
However, growth has been uneven in the U.S. this year, with the economy expanding 2% in the third quarter, down from 3.9% in the second quarter and up from 0.6% in the first three months.
“There’s a tug of war that’s been going on in the market as to whether or not growth is picking up in the U.S., and whether or not the U.S. can continue to expand even modestly amid a backdrop of sluggish global growth,” Quincy Krosby, market strategist at Prudential Financial, told the WSJ. “Small and midcap [stocks]have been the victim of this ongoing debate.”