As we look for ways to position our portfolios for the start of the next bull market run, investors should look to small-capitalization stocks and related exchange traded funds to get in on the start of the new economic cycle.
“It’s probably time to think about small caps in your asset allocation,” Will McGough, chief investment officer at Stadion Money Management, a retirement managed account advisor, told CNBC.
McGough argued that after years of underperformance, the “tide is turning” for smaller company stocks, especially those therapeutic companies that are driving gains in the health-care-heavy group.
“Small-cap companies represent the heart of the American economy — Main Street, so to say — and if you think things are going to get better and have optimism going forward, small caps are your play,” McGough added.
The iShares Russell 2000 ETF (IWM) has been a go-to to access the small-cap asset category. IWM tracks the widely observed Russell 2000 Index, which is comprised of 2,000 small-cap domestic stocks. Many have used the ETF to diversify a U.S. stock allocation and seek long-term growth in their portfolio.
The iShares Core S&P Small-Cap ETF (IJR) is another low-cost and tax efficient investment to gain exposure to U.S. small-cap stocks. IJR tracks the S&P Small600 Index, which cover a narrower range of capitalization than the companies covered by the Russell 2000 index and is comprised of small-cap companies taken from the broader S&P 1500. ETF investors have used IJR at the core of a portfolio to seek long-term growth.
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