If any investment is firing on all cylinders right now then that is small caps. The segment has been on a steady uptrend since mid-March, following the onset of President Trump’s protectionist policies. Since then, trade war fears have taken Wall Street in its grip, which started weighing on large-cap stocks that have considerable international exposure.
Inside Trade Tensions
The main clash is with China. President Trump’s $50 billion levy on Chinese imports has lately been retaliated by a Chinese levy on an equal worth of goods, including U.S. crude and gasoline. Both will now enact a 25% tariff on each other’s $34 billion of goods from Jul 6. The remaining $16 billion worth of goods will be under public review (read: Time to Buy Defensive ETFs?).
The situation took an ugly turn when White House said this week that if China keeps retaliating to U.S. tariffs announced last week, the United States will enact tariffs on an extra $200 billion worth of Chinese goods. If this was not enough, Trump announced tariffs on steel and aluminum imports from Canada, Mexico and some EU countries (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).
Strong U.S. Economy and a Hawkish Fed
In addition to trade tensions, there were some other factors that played their role in dragging large-cap stocks lower. The U.S. economy has been on a steady ground. The Fed has also enacted two rate hikes this year and may ratify two more. This should give a boost to the greenback and extend the small-cap rally (read: Fed Turns Hawkish: ETF Areas to Win).
Small-cap stocks are more domestically-focused and thus not exposed to geopolitical risks and negative currency translations. These criteria enabled a bunch of small-cap funds to cash in on an improving U.S. economy while dodging tensions stemming from trade war and a rising dollar. Apart from this, upbeat earnings sent small caps rallying in recent times (read: Solid Small-Cap Earnings Put Spotlight on These Sector ETFs).
Given this, we would likely to highlight a few small-cap ETFs that have been hovering around their 52-week highs. These are also at their one-month highs and appear to be strong momentum plays. Given no signs of a slowdown in trade tensions and an upbeat U.S. economy, these ETFs are poised for further rally.
These funds outperformed iShares Russell 2000 ETF (IWM) (up 1.77%) in the last 10 days(as of Jun 19, 2018).
VictoryShares US Small Cap Vol Weighted ETF (CSA) – Up 1.9%in the last 10 days
JPMorgan (NYSE:JPM) Divers Ret US Small Cap Equity ETF (JPSE) – Up 2.2%
WisdomTree US SmallCap Dividend ETF ( (MNE:DES) ) – Up 2.1%
iShares Morningstar Small-Cap Growth ETF (JKK) – Up 3.2%
iShares Edge MSCI Min Vol USA Small-Cp ETF (SMMV) – Up 1.8%
Vanguard Russell 2000 ETF (VTWO) – Up 1.8%
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ISHARS-R 2000 (IWM): ETF Research Reports
WISTR-US SC DV (DES): ETF Research Reports
V-SHRS USSC VWI (CSA): ETF Research Reports
JPM-DVSFD RT SC (JPSE): ETF Research Reports
ISHRS-E MS MVUS (SMMV): ETF Research Reports
ISHARS-MO SC GR (JKK): ETF Research Reports
VANGD-RUS 2000 (VTWO): ETF Research Reports
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Zacks Investment Research