Big-cap bull market turns two, leaving small-cap stocks further behind

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Avantis US Small Cap Value ETF,Dimensional U.S. Small Cap ETF,Ishares Core S&P Small-Cap ETF

In exasperation, small cap enthusiasts have turned to ETFs that exclude unprofitable companies altogether, and those funds have been attracting inflows.

Frustrated small cap investors are turning to companies with profits as the bull market in big cap stocks starts its third year. The S & P 500 bottomed two years ago in October 2022 and since then has risen 63%, last week reaching an historic high. Not so with the small-cap Russell 2000 : it didn't bottom until October 2023, and is only 35% off the low, still 9% shy of its historic high in November 2021.

0% Given this frustrating underperformance, it's little surprise investors who continue to believe diversification is an important component of any portfolio and are unwilling to completely give up on small caps are looking at alternatives to simply investing in small caps based on market capitalization. A profitability tilt Judging by the recent flow of funds, many seem to have found some solace by including an additional factor: a profitability tilt.

 

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