Small-Cap Stocks, ETFs Can Still Perform if Interest Rates Rise

Many believe smaller companies could struggle if the Federal Reserve begins hiking interest rates. However, small-cap stocks and category-related exchange traded funds may outperform ahead.

Small-cap skeptics point to a number of factors that may weigh on the asset category. For instance, some point out that small companies rely on bank loans for financing, including those with adjustable-rates, which would cost more to service as rates rise, reports John Waggoner for InvestmentNews.

Additionally, naysayers may argue that investors may treat small-cap growth companies like a bond with no maturity, making the low-dividend-paying category less appealing as rates rise.

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However, the equities market has been aware of an impending Federal Reserve rate hike and more or less priced the action in. Furthermore, Sam Stovall, U.S. equity strategist for S&P Global Market Intelligence, pointed out that small-cap stocks have held up better than large-caps in the wake of Fed Chairwoman Janet Yellen’s speech.