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Time to Bet on Small-Caps? Wall St. Thinks So.
VTWO Performance & fees
Tom Lee of Fundstrat Global Advisors has a bold prediction that’s shaking up the investing world: the Russell 2000 could soar by 40% before summer ends. While the S&P 500 is dragging its feet, the Russell 2000 has surged by 10.4% in July. Why? Small-cap stocks are historically cheap, and the expected interest rate cuts by the Federal Reserve could give them a substantial boost.
The Case for the Russell 2000
Small-cap stocks have been underperforming large-cap stocks for a decade. But as Michael Cembalest from JPMorgan Chase notes, they’re now trading at their cheapest levels in the 21st century. Here’s why this matters:
Valuation Gap: Since July 2014, the Russell 2000 has returned 126%, compared to the S&P 500’s 232%. This steep discount makes small-caps a potentially lucrative buy.
Interest Rate Sensitivity: With 30% of their debt on a floating-rate basis, small-caps stand to benefit more from rate cuts than large-caps.
Political Catalysts: Potential tariffs could hit large-caps harder, giving small-caps an edge.
However, it’s not all sunshine and rainbows. Small-cap companies are less profitable and more sensitive to interest rate changes, which partly explains their cheap valuations. But for the patient investor, the potential rewards might outweigh the risks.
Why the Vanguard Russell 2000 ETF (VTWO) is a Smart Play
If you’re looking to capitalize on this potential small-cap surge, the Vanguard Russell 2000 ETF (VTWO) is a solid choice. Here’s why:
Broad Exposure: Tracks the performance of about 2,000 small-cap stocks, offering diversification.
Sector Allocation: Focused on industrials, healthcare, and financials, sectors that could benefit from the current economic environment.
Low Expense Ratio: At 0.1%, it’s cost-effective, meaning more of your money stays invested.
The top five holdings in VTWO are:
Insmed: 0.4%
FTAI Aviation: 0.4%
Abercrombie & Fitch: 0.4%
Fabrinet: 0.4%
Sprouts Farmers Market
Bottom Line
The imminent interest rate cuts and historically cheap valuations make the Russell 2000 an attractive option right now. But remember, these companies are less profitable than their large-cap counterparts. If you’re game for some risk and have a long-term perspective, consider adding the Vanguard Russell 2000 ETF to your portfolio. Just don’t go overboard – keep it to 5% to 10% of your portfolio to balance out the risks. The S&P 500’s performance has been stellar, so a diversified approach remains prudent.
For more details, you can check out the Russell 2000 index overview and the VTWO chart.
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Last Editions Results
Would a candidate's stance on cryptocurrency influence your vote?
🟩🟩🟩🟩🟩🟩 💰 Absolutely! Crypto policy is a game-changer for me.
🟨🟨🟨🟨⬜️⬜️ 🤔 Somewhat. It’s one of many factors I consider.
🟨⬜️⬜️⬜️⬜️⬜️ 📋 Not really. I have other priorities.
🟨🟨🟨🟨⬜️⬜️ 🚫 No way. Crypto doesn’t influence my vote at all.
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