Small-cap stocks and ETFs are regaining their shine as bargain-hunting investors poured money into them over the past few weeks. This rebound came as we saw a broader rotation into cheaper areas of the market.
In addition to attractive valuations, easing of trade tensions also benefitted small-cap stocks. Further, recent economic reports suggest that the US economy remains on solid footing. Small-cap companies are more sensitive to the health of the US economy as they are domestically oriented.
However, investors should remember that small-cap stocks are riskier than larger stocks. Further, they are in an earnings recession currently.
The two most popular small-cap ETFs—the iShares Core S&P Small-Cap ETF (IJR - Free Report) and the iShares Russell 2000 ETF (IWM - Free Report) have delivered significantly different returns historically.
Since December 1993, the S&P SmallCap 600 has outperformed the Russell 2000 with lower volatility; it has gained 10.44% versus Russell 2000s 8.78%, according to a study conducted by S&P Dow Jones.
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