Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
The Summer of Small Caps! 3 Small Cap ETFs to Watch in August 2024
Jasmine Birtles
6th Aug 2024
This summer has seen a surge of interest in small-cap stocks, which are finally bouncing back after a stretch of lackluster performance. Both the UK and US markets are witnessing a revival in these smaller companies, making it an opportune moment to consider incorporating them into your investment portfolio!
A recent report by JP Morgan revealed that small-cap stocks in the US have surged by more than 9%, in stark contrast to the S&P 500, which has seen a modest increase of just over 2%, while the NASDAQ remains relatively stagnant with a growth of only 1%.
It looks like this will be the summer when small-cap stocks bounce back.
In the first half of 2024, large-cap stocks dominated the US market, surpassing their smaller counterparts by over 16%. Yet, it appears that the tide may be turning!
Analysts have also spotted this pattern in the UK stock market, with the FTSE small cap index outperforming the FTSE 100 and FTSE 250.
In the last 6 months, the FTSE small cap has seen 11.42% growth. The larger-cap FTSE 100 has seen only 10.17% growth.
These numbers aren’t quite as dramatic as the US markets. However, it still hows that small caps are shining right now!
Is now a good time to invest in small caps?
The answer seems pretty obvious to me. However, it’s important to take a look at exactly why you might want to consider adding small caps to your portfolio.
The Chief US market strategist at Morningstar has pointed out that small-cap stocks are currently the most undervalued segment of the market.
As of early July, these US small-cap stocks were trading at a significant 20% discount compared to their fair value, indicating substantial potential for future growth!
On the flip side, large-cap stocks appear to be overvalued at this time, suggesting that a market correction may be on the way, and the potential for additional growth seems quite limited.
Investing when the market is undervalued can significantly enhance your potential for returns. So, this could be an excellent moment to consider incorporating some small-cap stocks into your investment portfolio!
3 Small Cap ETFs to watch
It seems like now is a great time to add small cap stocks to your portfolio.
The easiest way to do this is to invest in ETFs, which allow you to invest in a basket of different stocks instead of picking just one.
There are loads of small cap ETFs out there and I recommend shopping around a bit to see what you can find!
To get started, here are 3 small cap ETFs to consider.
iShares Russell 2000 ETF
Leading the pack is the iShares Russell 2000 ETF (IWM), a popular option among those who have a keen interest in small-cap stocks.
This exchange-traded fund is based in the United States, making it an appealing choice for investors who are open to exploring opportunities beyond domestic markets.
This exchange-traded fund follows the Russell 2000 Index, which features the 2,000 smallest companies within the broader Russell 3000 Index.
The iShares Russell 2000 ETF showcases a wide array of stocks spanning multiple sectors, with notable investments in companies such as NOV Inc, Zebra Technologies Corp, and IDEX Corp.
FTSE Small Cap Fund
For those interested in focusing on UK markets, this option is for you!
This fund follows the FTSE Small Cap Index, featuring companies that, while smaller than those in the FTSE 100 or FTSE 250, possess significant potential for growth.
The FTSE Small Cap Fund features a diverse array of stocks spanning various UK sectors, offering extensive exposure to the smaller companies of the UK market.
Among its holdings are Dunelm Group Plc, Greggs Plc, and Hollywood Bowl Group Plc.
Investing in this fund is a great way to put money into the UK market!
iShares MSCI UK Small Cap UCITS ETF
The iShares MSCI UK Small Cap UCITS ETF is another good choice for investors who want to stick with the UK market.
This fund is designed to mirror the performance of the MSCI UK Small Cap index, offering a strategic way to engage with smaller companies in the UK.
The index monitors small-cap stocks in the UK, including notable companies like Dechra Pharmaceuticals Plc, Marks and Spencer Group, and Rightmove.
Much like the FTSE Small Cap, these stocks exhibit significant growth potential and generally show strong long-term performance.
Small cap stocks can provide great returns in the long-term. However, they might be a bit disappointing for investors who are looking to make profits in the short term.
Making money from the stock market is a game of patience, especially when it comes to growth stocks!
Before you go ahead and add any small-cap ETFs to your portfolio, it is important to conduct thorough research, assess your risk appetite and make sure that the investment aligns with your strategy.
Check out our guide on how to research stocks to get started.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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