U.S. small-cap stocks and exchange traded funds, such as the iShares Core S&P Small-Cap ETF (NYSEArca: IJR) and the iShares Russell 2000 ETF (NYSEArca: IWM), have been widely highlighted as laggards among equity ETFs this year.
IWM is the biggest ETF tracking the widely followed Russell 2000 Index. Following Election Day, investors flocked to IWM, IJR and rival small-cap ETFs as markets priced in President Donald Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth.
Somewhat quietly, IWM is higher by more than 3% over the past month, topping the S&P 500 along the way. That could be a sign of more upside to come for smaller stocks.
“On a chart of the Russell 2000 relative to the S&P 500, technical analyst Carter Worth noted that the small-cap index was underperforming its large-cap counterpart toward the end of 2015, but has since played a massive game of catch up,” reports CNBC. “Additionally, Worth highlighted a key consolidation period over the last several months on the chart, which could lead to a massive move higher.”
Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.