3 Reasons To Play Small-Cap Value ETFs Over Growth Ones

Also, as per an article published on thestreet.com, the previous tax law entailed full deduction of interest paid. The new law will hold companies back from relying on debt too much. There is a provision in the tax blueprint that calls for limiting “deductions to 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) for four years, and 30% of EBIT after that.” Since many small-cap stocks are debt-reliant for their survival, the new rule may cut back the full benefits expected from the tax reform. 

Plus, volatility last year was at record-low levels and may spike this year. Since small-cap stocks underperform in a volatile market, it is better to tap the value spectrum of this capitalization.

Better Earnings Growth

Small-cap value stocks have also seen earnings estimates being risen by 6.5% against a decrease of 6.3% for growth companies. Probably this is why small-cap value stocks have beaten out small-cap growth since mid-August.

Under the ETF Performance

Below we highlight the better performances of some value ETFs like First Trust Small Cap Value AlphaDEX Fund (FYT - Free Report) (12.3%), WisdomTree US SmallCap Earnings ETF (EES - Free Report) (up 13.8%), Vanguard S&P Small-Cap 600 Value ETF (VIOV - Free Report) (up 12.9%) and Schwab Fundamental U.S. Small Company Index ETF (FNDA - Free Report) (up 11.4%) than growth ETFs including Vanguard Small Cap Growth ETF (VBK - Free Report) (up 11.2%) and Guggenheim S&P 600 SmallCap Pure Growth (RZG - Free Report) (up 10.6%) since September 2017.

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