In this episode of ETF Spotlight, I speak with Chris Tessin, CIO at Acuitas Investments, about the outlook for small-cap stocks. Acuitas Investments is a boutique investment firm focused exclusively on small- and micro-cap equities.
Small-cap stocks posted a blistering performance in the first half of this year. The Russell 2000 Index surged 22% through June, marking its strongest first-half performance since 1991. AI beneficiaries were among the top-performing small-cap stocks, helping drive the S&P SmallCap Information Technology ETF PSCT up 42% year to date.
The Russell indexes rebalanced at the end of June. Many of the Russell 2000's best-performing constituents before the rebalance, including Bloom Energy BE, TeraWulf WULF, and Sterling Infrastructure STRL, have now moved into the large-cap index.
Since its inception in May 2000, the iShares Core S&P Small-Cap ETF IJR has significantly outperformed the iShares Russell 2000 ETF IWM due to its built-in profitability requirement.
Over the past year, however, the Russell 2000 has outperformed the S&P SmallCap 600 because many companies tied to quantum computing, nuclear energy, and AI are not yet profitable and are therefore excluded from the S&P SmallCap 600.
Small caps simply do not get the same attention because most investors gravitate toward mega-cap technology stocks given their exceptional performance. Investors also point out that many of the best companies are staying private much longer than they used to, meaning public investors are unable to participate in their high-growth phase.
Valuations remain attractive relative to large caps, and increased M&A activity has created a strong backdrop for small- and micro-cap stocks. Chris believes the outlook for small caps remains positive due to rising earnings growth expectations, tailwinds from a deregulatory environment, and renewed investor focus on the innovations in technology and other sectors being driven by small-cap companies.
The Acuitas Small Cap Active ETF AIMS takes a multi-manager approach to provide investors with access to best-in-class small-cap strategies.
Tune in to the podcast to learn more.
Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com.
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Sterling Infrastructure, Inc. (STRL): Free Stock Analysis Report
iShares Russell 2000 ETF (IWM): ETF Research Reports
Invesco S&P SmallCap Information Technology ETF (PSCT): ETF Research Reports
iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports
Bloom Energy Corporation (BE): Free Stock Analysis Report
TeraWulf Inc. (WULF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).