Small capitalization stocks and related small-cap ETFs have not been as quick to rebound, following last year’s rout, but the stronger U.S. dollar may help lay the ground work for this category to outperform.

The iShares Russell 2000 ETF (NYSEArca: IWM), which tracks the widely observed Russell 2000 Index of small-cap names, has increased 19.1% year-to-date but it remains about 8% below its August record highs.

Meanwhile, the Russell 2000’s larger peers have recently pushed toward new records after the dismal fourth-quarter selling. The S&P 500 and Nasdaq both recently touched new records on Monday while the Dow Jones Industrial Average was about 1% shy of its October high.

However, the recent momentum in the U.S. dollar and weak inflation could help strengthen the small-cap segment since these smaller companies are more closely tied to the domestic economy than heir larger multi-national peers. Small-caps are more insulated from the negative effects of a strong USD since most of their revenue come from the domestic economy, whereas larger companies have more overseas exposure, so foreign revenues are smaller when converted back to the strong dollar.

Furthermore, the Federal Reserve is likely to stand pat on rates, which would help smaller shops secure lower cost loans.

“A stronger dollar and a Fed on pause should point to a better Russell 2000, but we haven’t seen it yet,” Carlos Dominguez, president and chief investment officer at Miami-based Element Pointe Advisors, told the Wall Street Journal reports. “You have to watch the Russell 2000 to gauge where the broader stock market goes from here. If small-cap stocks can break out from here, I’ll be bullish.”

Eric Marshall, portfolio manager of the Hodges Fund, said the firm has also raised its small-cap stock exposure this month across a broad array of sectors.

“We do think you can find opportunities in small-caps, in particular some of the beaten-down financial stocks, technology in both software and semiconductors, as well as some of the more cyclical areas like home-building,” Marshall told the WSJ.

This is a list of all Small-Cap ETFs traded in the USA which are currently tagged by ETF Database:

SymbolETF NameTotal Assets ($MM)YTD
IJRiShares Core S&P Small-Cap ETF$44,982.5715.98%
IWMiShares Russell 2000 ETF$43,039.7418.53%
IWOiShares Russell 2000 Growth ETF$9,359.3320.70%
IWNiShares Russell 2000 Value ETF$9,128.0416.10%
SCHASchwab U.S. Small-Cap ETF$8,322.5319.71%
IJTiShares S&P SmallCap 600 Growth ETF$5,706.5614.59%
DESWisdomTree US SmallCap Dividend ETF$2,156.6515.26%
SLYGSPDR S&P 600 Small Cap Growth ETF$1,965.7814.67%
XSLVInvesco S&P SmallCap Low Volatility ETF$1,950.7613.50%
VTWOVanguard Russell 2000 ETF$1,558.9318.68%
SPSMSPDR Portfolio Small Cap ETF$1,400.2518.93%
SLYSPDR S&P 600 Small Cap ETF$1,298.6815.73%
VIOOVanguard S&P Small-Cap 600 ETF$1,111.5715.87%

* Assets and Average Volume as of 2019-04-30 20:15 UTC 

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