Small-cap stocks are being deemed by some as appealing right now, and related exchange traded funds (ETFs) can help investors gain exposure without having to stock-pick.
Historically, any bear market aftermath tends to favor small-cap stocks over their larger brethren. Why?
- James Picerno for Financial Advisor says that one reason small-cap stocks tend to trade at low multiples to book value and other fundamental measures is that they tend to be distressed firms, even in the best of times. When optimism returns to the markets, investors are more willing to take on some risk.
- After a recession, small-cap stocks tend to receive renewed investor attention because of their tendency to be recession beta—a beta that’s expected to generate a return premium above and beyond what’s dispensed by a passive measure of stocks generally.
- Small caps are known for being nimble and adaptable to quickly shifting economic conditions.
If small caps are an area that have been intriguing you, watch the 200-day moving average and have a firm entry and exit strategy. Among the small-cap value ETFs available include:
- Vanguard Small Cap Value (NYSEARCA:VBR): up 4.9% over three months
- PowerShares Dynamic Small Cap Value (PWY): up 0.3% over three months
- SPDR Dow Jones Small Cap Value (DSV): up 8.1% year-to-date