The Time is Now: Small-Cap Stocks Set to Shine
In the world of investing, timing is everything. And right now, all signs point to small-cap stocks finally getting their moment in the sun. The catalyst for this potential shift? The U.S. Federal Reserve’s upcoming interest rate cut cycle, which is set to kick off this week and could continue through 2024 and into early 2025.
Why Small-Cap Stocks Are Poised for Success
Small-cap stocks have been trailing behind their large-cap counterparts for some time now, but with interest rates on the decline, the landscape is about to change. Here’s why small-cap stocks are primed for success:
– Small-cap stocks typically struggle more when interest rates rise and remain high. This is due to their higher debt levels and reliance on bank financing, as well as their focus on domestic operations. When inflation is high and rates go up, consumer spending tends to decline, hitting small-cap stocks harder.
– Over the past decade, small-cap stocks, as represented by the Russell 2000 index, have seen annualized returns of +8.91%, compared to the S&P 500 index’s +15%.
How to Capitalize on the Small-Cap Stock Resurgence
If you’re looking to take advantage of this trend, there are two main ways to invest in small-cap stocks:
1. Individual Picks vs. ETFs: You can choose to pick individual stocks or invest in an ETF that provides diversified exposure to the sector. While individual picks offer a higher risk-reward scenario, they require thorough research. Alternatively, investing in an ETF can offer a more hands-off approach with broader exposure.
Introducing ProPicks: A Game-Changer in Small-Cap Stock Investing
ProPicks is a monthly-updated selection of AI-driven small- and mid-cap stocks that can help you identify top performers for under $9 a month. In a 10-year backtest, ProPicks outperformed the benchmark, delivering an impressive 17.5% annualized return.
Consider Vanguard S&P Small-Cap 600 Index Fund ETF Shares
Another option to capitalize on the small-cap stock resurgence is by investing in a sector-focused ETF like the Vanguard S&P Small-Cap 600 Index Fund ETF Shares (NYSE:). This ETF offers exposure to companies in the S&P SmallCap 600 index with a low expense ratio of 0.1%.
Key Positions in the Vanguard S&P Small-Cap 600 Index Fund ETF Shares:
– ATI (NYSE:)
– Mueller Industries (NYSE:)
– SPS Commerce (NASDAQ:)
– Fabrinet (NYSE:)
– The Ensign Group Inc (NASDAQ:)
– Meritage Homes (NYSE:)
– Comerica (NYSE:)
– Carpenter Technology (NYSE:)
– Robert Half (NYSE:)
The Bottom Line: Strategic Investing is Key
After years of underperformance, small-cap stocks may be on the brink of a resurgence. However, investing in this sector requires a strategic and focused approach. By making informed decisions and managing your portfolio wisely, you can reduce risks and position yourself for long-term gains.
In conclusion, the time to consider small-cap stocks for your investment portfolio is now. By understanding the potential benefits and risks associated with this sector and employing a thoughtful investment strategy, you can set yourself up for financial success in the future.