Small-caps are poised to get a “significant boost this year,” according to a recent article in Barron’s.
“While much of the broad market has been stuck in the mud,” the article reports, “the Russell 2000 has returned 6% this year, more than double the S&P 500’s 2.4%. The dollar’s strength, the easing of regulation in the corporate sector, and tax cuts have helped.”
The article also points out that, although small-cap operating margins had not recovered as much as larger companies have since the financial crisis, “a shift is happening, and the group could have more near-term upside,” citing comments from Morgan Stanley equity strategist Michael Wilson.
Citing three small-cap ETFs that are closely tracking the Russell 2000 and S&P 600 indexes, the article also offers insights from Vanguard’s head of factor strategies Anthony Picca, who says, “Returns of small-cap stocks tend to be volatile, so if small-caps do poorly, we’ll do worse than funds that only focus on large” stocks. But if the small-cap rally continues and large-caps follow suit, the article concludes, the outlook is good.