Tide Could Be Turning for Small Cap Stocks in 2020

The major indexes continue to reach for more record highs to start 2020 after a spate of positive economic data rolled in, including lower jobless claims and higher retail sales—all feeding into gains for large cap stocks, but that tide could be turning. The extended bull market is still running, and investors shouldn’t forget to add small cap exposure while the market is still white hot.

Per a Barron’s report, a “report published Friday by Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, the most popular stocks held by small-cap mutual funds failed to beat the market in 2019. A basket of the 21 most widely held stocks returned about 20%, trailing the 25.5% return of the Russell 2000.”

“After more than a decade of leading the market higher, mega-cap tech stocks like Apple, Amazon and others are finding it increasingly difficult to maintain their impressive growth numbers,” wrote Wayne Duggan in U.S. News & World Report. “Many of these stocks have market caps at or approaching $1 trillion dollars, and it’s understandable for investors to question just how much bigger they can get. At the same time the big tech stocks dominate headlines, there are plenty of small-cap stocks that are flying under the radar.”

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.

Conversely, if investors believe that small cap equities will outperform large cap equities, the Direxion Russell Small Over Large Cap ETF (NYSEArca: RWSL) provides a means to not only see small cap stocks perform well, but a way to capitalize on their outperformance versus their large cap brethren.

For more relative market trends, visit our Relative Value Channel.