In an interview with CNBC’s “ETF Edge” program, Dimensional Fund Advisors co-CEO and CIO Gerard O’Reilly says small-cap and value stocks look to continue climbing in 2022, and the firm is advising their clients to lean into them in their portfolios and keep a long-term view.
Even in years when small/value outperforms large/growth, small/value tends to do well in the following 12 months, often yielding 4% or greater returns when compared to larger, growth-focused stocks. And though the small-cap benchmark Russell 2000 index is currently trailing behind other major indexes, the Russell 2000 Value index is outperforming both the S&P 500 and the Nasdaq Composite. Dimensional’s own U.S. Small Cap ETF and U.S. Targeted Value ETF, which both launched in June, are beating their benchmarks, though still underperforming against the major averages, the article notes.
If the omicron variant has a greater impact on the economy, markets could still run into trouble, says Nate Geraci, president of the ETF Store, in the same interview with CNBC, because it could lead to continued supply chain issues and greater inflationary pressure. That would be a worst-case scenario, Geraci said, and ultimately he believes it’s a good bet that the Fed will always be supportive of the market and not let it get that far.