Market On Rise: 5 Small Cap ETFs Leading The Way

The U.S. stock market has shown some strength in recent weeks, especially following the Fed’s hawkish comments and a spate of positive economic indicators. While the S&P 500 touched new 2016 highs, small caps as represented by the Russell 2000 are leading the current rally. Though the regained momentum in the U.S. economy spread a strong air of optimism in the small cap space, Brexit fears, the Fed policy, a strong dollar and slow growth in many corners of the world continue to keep many investors away from large cap stocks.

This is especially true given that the ultra-popular small cap ETF (IWM -ETF report) has gained nearly 3.7% over the past one-month compared to a gain of about 2.2% for (SPY -ETF report) . The economy was off to a strong start in the second quarter after stalling in the first as inflation picked up, manufacturing stabilized and industrial production started rising. The housing market is showing signs of a spring rebound given that new home construction and building permits rebounded in April (read: Play US Recovery with These Small-Cap Blend ETFs).

In addition, retail sales jumped 1.3% in April, representing the largest gain since March 2015, buoyed by online shopping. Consumer confidence also bounced back to its strongest level in nearly a year in May, with the preliminary University of Michigan sentiment index reading 95.8, up from 89 in April. All these suggest that the world’s largest economy has regained momentum, benefiting small caps the most.  

This is because these pint-sized stocks are closely tied to the U.S. economy and generate most of their revenues from the domestic market, potentially freeing them from the clutches of a global malaise. Additionally, these stocks generally outperform when the American economy is leading the way. Further, since these companies are small, they are poised to grow more than their already tapped out large cap counterparts.

Below, we have highlighted five small cap ETFs that are easily crushing the overall market over the past one month (see: all the Small Caps ETFs here).

BioShares Biotechnology Clinical Trials Fund (BBC - ETF report

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Disclosure: None.

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