The current wave of momentum following a potential coronavirus vaccine is not only benefitting large cap equities, but also certain small caps.  Investors can look for opportunities in small caps to strike while the iron is hot.

“While it’s true that smaller companies tend to be more sensitive to economic downturns, that doesn’t mean every small stock is down and out right now,” a MarketWatch report noted, referencing small cap opportunities are abound in today’s market despite the tumult from the pandemic.

“These are not microcaps just subject to sentiment swings,” the report added. “They all are U.S.-based companies with an average daily volume of more than 400,000 shares and a market capitalization between $400 million and $2 billion. Development-stage biotech stocks are excluded, given the very volatile nature of this subsector.”

Exchange-traded fund (ETF) investors looking to make a play on small caps can look at the

 iShares Russell 2000 ETF (NYSEArca: IWM). The fund seeks to track the investment results of the Russell 2000® Index, which measures the performance of the small-capitalization 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. It 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.

A Relative Play Small Caps Over Large Caps?

For investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS)offers them the ability to benefit not only from large cap equities potentially performing well but from their outperformance compared to their small cap brethren.

RWSL features:

  • The Index measures the performance of a portfolio that has 150% long exposure to the Russell 2000® Index (the “Long Component”) and 50% short exposure to the Russell 1000® Index (the “Short Component”).
  • On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
  • In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a small-capitalization over large-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component. One cannot directly invest in an index.

To read the latest Relative Weight insights, click here.