Small caps just had their first historic week in three years, and one exchange-traded fund expert predicts the group's record highs will help drive investors back into the group.
"Small caps are going to become more in favor in 2025," VettaFi's Todd Rosenbluth said on CNBC's "ETF Edge" this week. "They started to perk up since the election and heading into the election as interest rates have been coming down."
Rosenbluth, the firm's head of research, expects ETF funds specializing in small caps to reap the benefits of investors looking to broaden out their market exposure.
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The Russell 2000, which tracks small-cap stocks, hit its first record high since November 2021 this week and just saw its best monthly performance since last December. The index is up almost 11% in November and 35% over the past 52 weeks as of Friday's close.
Rosenbluth suggests some profit taking in the "Magnificent Seven" stocks, which include Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla, will benefit small caps. He also expects investors to rotate out of money market accounts due to the effects of the Federal Reserve's interest rate easing policy.
"We expect some more dispersion in the winners," Rosenbluth said.
Money Report
Rosenbluth cited the iShares Core S&P Small-Cap ETF and the VictoryShares Small Cap Free Cash Flow ETF as potential ways to play strength in small caps. The Core S&P Small-Cap ETF is up 11% in November while the VictoryShares' fund is up almost 8%.
