Small-cap market strength could lead an economic recovery in 2021 as evidenced by the Russell 2000’s recent run higher in November. Small-caps can also be a value-oriented proposition since they don’t get the limelight of their larger-cap counterparts, which could feed into strength for ETFs like the iShares Russell 2000 Value ETF (IWN).

IWN seeks to track the investment results of the Russell 2000 Value Index, which measures the performance of the small-capitalization value sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.

The fund may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index.

IWN gives investors:

  1. Exposure to small public U.S. companies that are thought to be undervalued by the market, relative to comparable companies
  2. Targeted access to a specific category of small-cap domestic stocks
  3. Use to diversify a U.S. stock allocation and tilt a portfolio towards value stocks

IWN has made a steady climb back to its pre-pandemic levels and could see more strength through the rest of the year and into 2021.

IWN Chart

The Russell 2000 Is On Fire

The Russell 2000’s November to remember was highlighted by a FTSE Russell article in Seeking Alpha:

“In a banner month for global equity markets, the Russell 2000 clinched a historic milestone of its own. The US small-cap index climbed more than 18% in November, the best monthly gain since its inception in 1984,” the article said. “As shown below, this monthly advance outdistanced the previous record set in February 2000 amid the collapse of the dot-com bubble and waning large-cap dominance. The small-cap index also outpaced the Russell 1000’s 11.8% increase in November, narrowing its performance gap with its large-cap counterpart for the year (up 10.4% versus 16.1%, respectively).”

“The Russell 2000’s banner November comes amid a raft of positive vaccine news, a fast-track approval process for distribution and easing uncertainties around the US presidential transition,” the article added. “Resurgent hopes for a quicker US recovery triggered a massive rotation away from long-time tech winners dominating the Russell 1000 and into many of the pandemic-stricken cyclical sectors that make up a much larger share of the Russell 2000.”

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