The small-cap Russell 2000 index gained 1.90% yesterday, July 15.
That beat the 0.28% gain for the Standard & Poor’s 500. And the 0.53% gain for the Dow Jones Industrial Average. And a 0.27% gain for the NASDAQ 100 index.
And today, as of noon, New York time, the Russell 2000 is up another 2.25% versus a gain of just 0.30% for the S&P 500 and 1.21 for the Dow Industrials.The NASDAQ 100 is off 0.20%
All his continues the outperformance trend of last week that I wrote about in yesterday’s Saturday Night Quarterback post.
As I wrote in that post, small-cap stocks stand a good chance of continuing this outperformance when the Federal Reserve finally cuts interest rates. An interest rate cut is relatively more significant for small than large companies. And small-cap stocks are trading at a substantial valuation discount to the tech stocks that have led this rally.
The small-cap outperformance could go on for a while.
So how do you move quickly to follow this trend?
My suggestion is the iShares Russell 2000 ETF (IWM).
Today I’m adding this ETF to both my Jubak’s Picks 12-18 month portfolio and my shorter-term Volatility Portfolio.
The ETF is slightly more aggressive than other ETFs that track the Russell 2000 index. Stocks must have a $30 million minimum market cap and a 5% minimum float ratio to be considered for inclusion. That allows slightly more illiquid stocks in the ETF portfolio than the 10% required by its index counterpart from S&P.
The ETF also tends to hold stocks longer–annual turnover has averaged 19% over the past 10 years, less than half the category average–which lets the ETF ride longer with its winners.
The ETF has $64.6 billion in assets under management and charges a 0.19% expense ratio. It has a 1.3% dividend yield.
The ETF is up 8.29% for 2024 as of the close on July 15. All of that gain has come in the last month when the ETF is up 9.29%.
I had been using the ProShares Short Russell 2000 ETF (RWM) as a potential hedge against a Fed decision not to cut or to delay cuts to interest rates. This has been an expensive hedge losing 27% since I put it on in October 2023. It is obviously no longer needed either. So I’ll be selling this reverse ETF out of the Volatility Portfolio today.
