Major small-cap exchange traded funds, including the iShares Core S&P Small-Cap ETF (NYSEArca: IJR) and the iShares Russell 2000 ETF (NYSEArca: IWM), have recently started showing signs of shaking off their early year lethargy, but the truth is U.S. large-caps are beating their smaller counterparts.
Moreover, ex-US small-caps are trouncing their U.S. peers. Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.
Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar. Still, it pays to look outside the U.S. for other small-cap opportunities.
“The last few years have seen American large cap shares regain the lead versus global large caps, while American small caps continue to lag global small caps,” reports ValueWalk. “There are many plausible explanations for this bifurcation in the performance of global large and small caps, among them that they are less vulnerable to dramatic swings in exchange rates as they are more domestically oriented in their operations, and also that global small caps tend to be far less concentrated in certain industries than large caps, thus making them more durable investments in the face of sector-specific headwinds. Lastly, regional small indices tend to have far less concentration in certain nations than large cap indices, thus reducing nation-specific political risk.”