Small caps just had their first historic week in three years, and an exchange-traded fund expert predicts the group's record highs will help bring investors back into the group.
“Small caps will become increasingly popular in 2025,” VettaFi’s Todd Rosenbluth said on CNBC’s “ETF Edge” this week. “Since the election and at the beginning of the election, they have started to recover as interest rates have come down.”
Rosenbluth, the firm's head of research, expects small-cap ETF funds to benefit from investors looking to expand their market exposure.
The Russell 2000which tracks small-cap stocks, hit its first record high since November 2021 this week and just posted its best monthly performance since last December. The index is up nearly 11% in November and 35% over the past 52 weeks as of Friday.
Rosenbluth suggests some profit-taking moves on the Magnificent Seven stocks, including: Apple, Microsoft, alphabet, Amazon, Nvidia, Metaplatforms And Teslawill benefit small caps. He also expects investors to withdraw from money market accounts due to the impact of the Federal Reserve's rate-cutting policy.
“We expect a greater spread among the winners,” said Rosenbluth.
Rosenbluth quoted that iShares Core S&P Small-Cap ETF and the VictoryShares Small Cap Free Cash Flow ETF as potential ways to play to the strength of small caps. The Core S&P Small-Cap ETF gained 11% in November, while the VictoryShares fund gained nearly 8%.