Will 2024 be the Year of Small Caps and Value Stocks?

Small Cap ETFs Outperform Large Caps in July

July has highlighted an incredible decoupling between small-cap indices and their large-cap peers.

Despite double-digit performance differences in July, small caps are still far from closing the gap from the past 18 months. The S&P SmallCap 600 index is still underperforming the S&P500 benchmark index by 18.70% since the end of December 2022, though it has already gained 10.21% over July.

The end of the Fed’s rate tightening cycle, coupled with small caps’ historically low trading valuations compared to large caps, could create a compelling opportunity for investors, given the sector’s superior earnings growth potential. Moreover, a more dynamic M&A market could further enhance the appeal of this asset class.

Value Investing and Election Cycles

The current style rotation also benefits value stocks, albeit to a lesser extent. The S&P500 Value index is up to 3.92% for the month while the S&P500 is down 0.03%.

However, the S&P value index is still lagging behind the S&P500 benchmark by 12.02% since the end of December 2022.

Historically, value style investing has performed better during U.S. presidential election periods. The stability and perceived lower risk of value stocks tend to attract investors looking for more secure investments amid the uncertainty often associated with election cycles. This historical trend may be contributing to the current shift towards value investing.

Top Performing ETFs

Among the top performers, the iShares Core S&P Small-Cap ETF

, with assets totaling $86.1 billion, gained 3.55% last week and 10.26% over the month. Similarly, the EA Bridgeway Omni Small-Cap Value ETF

BSVO

+1.3%

saw a robust weekly gain of 4.56% (+12.25% month-to-date). On the other hand, the Vanguard Growth ETF

VUG

+0.18%

, with $130.5 billion in assets, lost 2.53% over the week (up  16.68% for the year).

Here’s a comparison between Small Cap, Value and Growth ETFs.

Group Data

Index Data

Funds Specific Data:

VUG

+0.18%

IJR

+0.97%

IWM

+0.87%

IWN

+1.17%

VTWO

+0.86%

CALF

+0.46%

IJS

+1.07%

SLYV

+1.09%

DES

+0.98%

BSVO

+1.3%

NUGO

+0.16%

QGRW

+0.15%

CARK

+0.23%

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.