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Here's Why Small-Cap ETFs Are Sizzling With Opportunities

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·2 min read
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The small-cap centric index, namely, the Russell 2000, has also gained about 38.7% in the past year. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to outshine when the economy improves.

Investors have multiple reasons to cheer as the U.S. economy is recovering from the pandemic-led slump amid the rising delta variant cases. The impressive second-quarter earnings reason, passage of the bipartisan infrastructure bill of $550 billion, data reflecting moderating inflationary pressure along with solid jobs report for July are some factors that are keeping the investing environment upbeat.

According to the Labor Department report, the consumer-price index increased 5.4% year over year in July and was up 0.5% sequentially (per a CNBC article). Also, there was a 0.3% sequential rise in core inflation (excludes energy and food prices) in July along with a 4.3% year-over-year increase.

Market analysts also seem to be upbeat about the second-quarter earnings season, which has already seen better-than-expected results, stimulating the rally in stock markets.

Moreover, the latest jobs report, which highlights improving employment conditions in the United States, is boosting optimism levels. According to the Labor Department, the U.S. economy added 943,000 jobs (he best since August 2020) last month amid surging delta variant woes, as stated in a CNBC article. The unemployment rate also declined to 5.4%, comparing favorably with the estimate of 5.7%, per a CNBC report.

The U.S. economy has been booming with growth exceeding the pre-pandemic level. This is especially true as GDP grew 6.5% annually in the second quarter, indicating sustained recovery from the pandemic-led recession. Moreover, the Fed’s continued support with easy monetary policies and solid fiscal stimulus spending are strengthening hopes of rapid recovery from the coronavirus-led slump.

For investors looking to capitalize on this opportunity, small-cap ETFs like Vanguard Small-Cap Growth ETF VBK, iShares Russell 2000 Growth ETF IWO, iShares S&P Small-Cap 600 Growth ETF IJT, Vanguard S&P Small-Cap 600 ETF VIOO and SPDR S&P 600 Small Cap Growth ETF SLYG could be strong pure plays.

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iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
iShares S&P SmallCap 600 Growth ETF (IJT): ETF Research Reports
Vanguard SmallCap Growth ETF (VBK): ETF Research Reports
SPDR S&P 600 Small Cap Growth ETF (SLYG): ETF Research Reports
Vanguard S&P SmallCap 600 ETF (VIOO): ETF Research Reports
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Zacks Investment Research