Investing in Small Caps: A Promising Future
Small caps have been making significant strides in the investment world, having their first historic week in three years. This has led to a renewed interest from investors, according to Todd Rosenbluth, an ETF specialist from VettaFi. Rosenbluth believes that small caps are set to gain more traction in 2025 due to their recent performance and the current economic climate.
“Small caps have been showing promising signs since the election, especially as interest rates have been reducing. We expect this trend to continue and gain more popularity among investors in the years to come,” Rosenbluth shared on CNBC’s “ETF Edge”.
Rosenbluth, who is the head of research at VettaFi, predicts that ETF funds focusing on small caps will benefit immensely from investors looking to diversify their market portfolios.
The Russell 2000, a renowned index tracking small-cap stocks, hit its first record high since November 2021, showcasing its best monthly performance since the previous December. As of the close of the last Friday in November, the index had risen approximately 11% for the month and 35% over the past 52 weeks.
Rosenbluth also suggested that investors might want to consider some profit taking from the “Magnificent Seven” stocks, which include giants like Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla. This, he believes, will work to the advantage of small caps. Rosenbluth also anticipates a shift of investors out of money market accounts due to the impact of the Federal Reserve’s interest rate easing policy.
“We’re expecting a broader dispersion of winners in the future,” said Rosenbluth.
For investors interested in leveraging the strength of small caps, Rosenbluth recommended the iShares Core S&P Small-Cap ETF and the VictoryShares Small Cap Free Cash Flow ETF. In November, the Core S&P Small-Cap ETF saw an increase of 11%, while the VictoryShares’ fund saw a near 8% rise.
In conclusion, the future of small caps seems promising, and they may serve as a valuable addition to investment portfolios looking for diversification and potential growth.
