5 Small-Cap Sector ETFs Beating The Russell 2000

Wall Street has been enjoying a series of record highs lately with small-cap stocks leading the way higher. This is especially true as the Russell 2000 Index is up 24.5% over the past three months, outperforming the gains of 18.1% for the S&P 400 Mid Cap Index and 7.8% for the S&P 500 Index.

Most of the gains were driven by the COVID-19 vaccine optimism with America now starting to roll out vaccination to millions of Americans developed by Pfizer (PFE - Free Report) in collaboration with a German biotechnology company, BioNTech (BNTX - Free Report). The vaccine may end the pandemic and lead to swift economic recovery. Small-cap companies are closely tied to the U.S. economy and are thus poised to outperform when the economy improves.

Additionally, the super-easy monetary policy has been driving the small-cap rally. Fed Chairman Jerome Powell pledged to keep rates at lower levels until the end of 2023. A low interest rate bodes well for small-cap stocks as it pushes up economic activities and results in higher spending, thus boosting domestically focused companies.

Looking at historical performances, December typically yields the second-best monthly performance, according to Sam Stovall, chief investment strategist at CFRA Research in New York. The Russell 2000 averages a 2.15% return in December, climbing 76% of the time for the highest frequency of advance compared to an average gain of 1.47% for the S&P 500 and a 73% frequency of advance. Moreover, the “January Effect,” which is a seasonal increase in stock prices largely due to year-end tax considerations, has been fueling a rally in the small-cap space.

Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs that have easily crushed the Russell 2000 Index over the past three months and are likely to continue their strong performance heading into the New Year.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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