5 Small-Cap Sector ETFs Leading The Russell 2000 Rally

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Amid inflation fears, Wall Street has been on a smooth ride as the economy is strongly recovering with millions of Americans fully vaccinated and pandemic restrictions being rolled back. While the gains are broad-based, small caps are leading the way higher in the latest rally. This is especially true as the Russell 2000 Index is up 6.2% in a month compared to gains of 1.4% for the S&P 400 Mid Cap Index and 1.8% for the S&P 500 Index.

The huge infrastructure package and expanded stimulus are among the major catalysts that are driving the stocks higher. Additionally, the bouts of the latest data instilled confidence in economic growth. U.S. manufacturing activity hit a record high in May for the second straight month supported by stronger expansion in output and new orders. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago, sharply higher than the March reading of 1.9% and the highest reading since 1992.

The combination of all the factors is leading to pent-up demand, resulting in higher demand for all types of products and services in the economy. As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. These pint-sized stocks generate most of their revenues from the domestic market, making them great choices during an uptrend. A low-interest rate also bodes well for small-cap stocks as it pushes up economic activities and results in higher spending, thus boosting the domestically focused companies.

Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs from different sectors that have easily crushed the Russell 2000 Index over the past month and are likely to continue their strong performance for the rest of the year.

Invesco S&P SmallCap Energy ETF (PSCE - Free Report) – Up 19.6%

This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 33 stocks in its basket with AUM of $193.3 million. The fund trades in an average daily volume of 749,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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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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