Small-Cap ETFs Are Now Exhibiting Less Volatility | ETF Trends

Smaller company stocks are typically seen as more risky when compared to their larger peers, but more recently, small-cap stocks and related ETFs are exhibiting volatility at record lows relative to large-caps.

In a small cap-led US equity space, the Russell 2000 Index has increased 10.3% relative to a 5.0% gain for the US large cap Russell 1000 Index so far this year. Meanwhile, the year-to-date volatility differential between small and large cap US stocks is at an all-time low, according to new research from Cboe Global Markets and FTSE Russell.

The iShares Russell 2000 ETF (NYSEArca: IWM), which tracks the benchmark Russell 2000 Index, has been outperforming this year. IWM gained 5.4% over the past month and is up 10.3% year-to-date. In comparison, the S&P 500 is up 2.8% over the past month and 4.9% higher so far this year.

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Cboe recently found that the “small cap premium,” or the difference between perceived US small cap volatility and US large cap volatility as reflected by average daily closing prices of the Cboe Russell 2000 Volatility Index (RVXSM) and the Cboe Volatility Index (VIX), is at the lowest point since it was first measured in 2004. The Cboe showed a 10% year-to-date differential for average daily closing prices through May between the RVX and VIX, compared to a high of over 50% back in 2006 and around 45% in 2017.