Related: The Best Small-Cap ETFs Leading Market’s Charge
Small-caps, though, can still navigate through a slowly rising rate environment. Smaller companies, which focus on U.S. markets, are less exposed to a stronger U.S. dollar as rates rise, which would more negatively affect larger corporations with a global footprint. Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies.
Data from FTSE Russell confirm that the Russell 2000 Growth Index, IWO’s benchmark, is performing well on days when 10-year yields rise.
“The reason equities have been positively correlated to rising interest rates recently is because higher rates represent a validation of global growth and are therefore consistent with healthy corporate fundamentals and thus good for stock prices,” said FTSE Russell Managing Director Alec Young.
For more information on small-capitalization stocks, visit our small-cap category.