One of the major axioms of the investing world is that over long periods, small beats large.
Thanks to the research of economists Fama and French, small-cap stocks have shown their muscle and have managed to outperform large-cap equities during their study periods. The idea is that their growing revenues are potentially valued more by investors than their slower-moving, larger sisters.
And because of that, small-cap indexes and funds like the iShares Russell 2000 ETF (IWM) have gone on to crush large-cap stocks.
That is, until the recession. Since then, small-caps have functioned in a weird bizarro world where their outperformance was not guaranteed. And in fact, after an initial rebound from the depths of the recession, small-caps fell by the wayside.
But with Trump promising growth, small-caps have once again begun to move in a passive direction. The question is whether or not this is a false start in the current trend of underperformance, or if it is truly a return to small-caps’ former glory days.
Find all the small-cap ETFs available here.