Small-cap stocks have been making a comeback in recent weeks, outperforming their large-cap counterparts. This resurgence comes after a period of underperformance for small caps, which had been lagging behind large caps for the past couple of years.
Analysts had high hopes for small caps at the beginning of the year, especially after a strong performance in the fourth quarter of 2023. Many predicted that small caps would outperform large caps in 2024, but that didn’t materialize in the first half of the year. However, things seem to be turning around now, with the Russell 2000 index showing strong gains in the past few weeks.
Historically, small caps have performed well in presidential election years. A recent study by Lincoln Financial found that small caps have beaten large caps in 7 out of the last 11 presidential election years. This trend could present an opportunity for investors to capitalize on the potential outperformance of small caps.
To tap into the small-cap resurgence, consider investing in ETFs. Here are the top 3 small-cap ETFs to consider:
1. Invesco S&P SmallCap Momentum ETF
The Invesco S&P SmallCap Momentum ETF (NYSE:) has been one of the top-performing small-cap ETFs over the past year, with a one-year return of 36% as of July 16. This ETF focuses on small-cap growth stocks with the highest momentum scores, making it a good choice for investors looking for potential upside.
2. Invesco S&P SmallCap Value with Momentum ETF
The Invesco S&P SmallCap Value with Momentum ETF (NYSE:) is another strong option for investors, with a five-year annualized return of 16.2%. This ETF tracks stocks with both value and momentum characteristics, providing a balanced approach to small-cap investing.
3. Principal U.S. Small Cap ETF
The Principal U.S. Small Cap ETF (NASDAQ:) is an actively managed ETF that has beaten the Russell 2000 benchmark over multiple time periods. With a focus on high-quality small caps with strong momentum, this ETF offers a professionally managed approach to small-cap investing.
These three small-cap ETFs offer a mix of growth, value, and active management strategies, making them ideal additions to a portfolio in the current small-cap market environment.
Overall, small-cap stocks are showing signs of strength and potential outperformance, making now a good time for investors to consider adding exposure to this segment of the market.