Small caps have recently experienced a surge, marking their first historic week in three years. According to VettaFi’s Todd Rosenbluth, this momentum is likely to continue into 2025 as interest rates decrease and investors seek to diversify their portfolios.
The Russell 2000 index, which tracks small-cap stocks, reached a record high this week for the first time since November 2021. With an almost 11% increase in November and a 35% rise over the past 52 weeks, small caps are proving to be a lucrative investment option.
Rosenbluth suggests that investors may consider taking profits from the “Magnificent Seven” stocks, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla, in favor of small caps. He also anticipates a shift away from money market accounts due to the Federal Reserve’s interest rate easing policy.
In light of this trend, Rosenbluth recommends considering ETFs focused on small caps such as the iShares Core S&P Small-Cap ETF and the VictoryShares Small Cap Free Cash Flow ETF. These ETFs have shown strong performance, with the Core S&P Small-Cap ETF up 11% in November and the VictoryShares’ fund up almost 8%.
Overall, small caps are poised to attract more attention from investors in the coming year, driven by record highs and favorable market conditions. As the market continues to evolve, small caps may offer a promising opportunity for those looking to capitalize on this growing sector.
