small caps have just had their first historic week in three years, and one exchange-traded fund expert predicts that the group’s record highs will drive investors back into the group. todd rosenbluth, the head of research at vettafi, believes that small caps will become more popular in 2025 as interest rates continue to fall. he notes that small caps have started to pick up since the election, and are likely to continue to benefit from the decline in interest rates. the russell 2000, which tracks small-cap stocks, hit its first record high since november 2021 this week, and has seen its best monthly performance since december of last year. the index is up almost 11% in november and 35% over the past 52 weeks.
rosenbluth suggests that some profit taking in the “magnificent seven” stocks, including apple, microsoft, and amazon, will benefit small caps. he also expects investors to rotate out of money market accounts due to the federal reserve’s interest rate easing policy. “we expect some more dispersion in the winners,” rosenbluth said.
rosenbluth recommends the ishares core s&p small-cap etf and the victoryshares small cap free cash flow etf as potential ways to play the strength in small caps. both funds have seen significant gains in recent months, with the core s&p small-cap etf up 11% in november and the victoryshares’ fund up almost 8%.
