Small caps had their first historic week in three years, and one exchange-traded fund expert predicts the group's record highs will help bring investors back into the fold.
“Small caps will become more favored in 2025,” VettaFi's Todd Rosenbluth said on CNBC's “ETF Edge” this week. “They have been improving since the election and are heading into the election with lower interest rates.”
Rosenbluth, the company's head of research, expects ETFs specializing in small companies to reap the benefits of investors looking to expand their exposure to the market.
the Russell 2000which tracks small-cap stocks, hit its first record high since November 2021 this week and just saw its best monthly performance since last December. The index was up nearly 11% in November and 35% over the past 52 weeks through Friday's close.
Rosenbluth suggests some profit taking plays in Magnificent Seven stock, which include apple, Microsoft, alphabet, Amazon, Nvidia, Meta platforms and TeslaSmall caps will benefit. Investors are also expected to exit money market accounts due to the effects of the Federal Reserve's easing interest rate policy.
“We expect more dispersion among the winners,” Rosenbluth said.
Rosenbluth cited iShares Core S&P Small-Cap ETF and VictoryShares Small Cap Free Cash Flow ETF as potential ways to play power in small caps. The Core S&P Small-Cap ETF rose 11% in November while the VictoryShares ETF rose nearly 8%.
