Small caps just had their first historic week in three years, and one exchange-traded fund expert predicts the group’s record highs will help investors return to the group.
“Small caps will become increasingly popular in 2025,” VettaFi’s Todd Rosenbluth said on CNBC’s “ETF Edge” this week. “They started to perk up since the election and headed into the election as interest rates have fallen.”
Rosenbluth, the firm’s head of research, expects ETF funds that specialize in small caps to reap the benefits of investors looking to broaden their market exposure.
The Russell 2000which tracks small-cap stocks, this week hit its first all-time high since November 2021 and just saw its best monthly performance since last December. The index is up nearly 11% in November and 35% over the past 52 weeks as of Friday.
Rosenbluth suggests some profit-taking in the “Magnificent Seven” stocks, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Metaplatforms And Teslawill benefit small caps. He also expects investors to abandon their money market accounts due to the effects of the Federal Reserve’s interest rate easing policy.
“We expect a little more spread among the winners,” Rosenbluth said.
Rosenbluth quoted the iShares Core S&P Small-Cap ETF and the VictoryShares Small Cap Free Cash Flow ETF as potential ways to gain strength in small caps. The Core S&P Small-Cap ETF is up 11% in November, while the VictoryShares fund is up almost 8%.