“I’m a Money Expert—Here Are 3 Small ETFs You Can Add to Your Portfolio Right Now” | Personal Finance

This summer, all eyes have been on small cap stocks. After a period of poor performance, small cap stocks in the UK and US have made a comeback. And now could be a good time to add them to your portfolio!

According to the latest JP Morgan report, US small-cap stocks are up more than nine per cent, while the S&P 500 is up just over two per cent and the NASDAQ is holding steady at one per cent.

Many believe this marks the beginning of a small-cap revival. Large-cap stocks carried the US market in the first half of 2024, outperforming small-caps by more than 16 percent. However, that seems to have changed!

It’s not just the US market that’s doing this. The FTSE Small Cap Index is up 11.42 per cent in the past six months, while its large-cap sister index, the FTSE 100, is up just 10.17 per cent.

While the difference between large and small cap stocks in the UK market may not be that significant, it is clear that it is time for small cap stocks to shine!

Why is now a good time to invest in small-cap stocks?

So why have small-cap stocks been doing so well lately? According to Morningstar’s Chief US Market Strategist, small-cap stocks are the most undervalued. In early July, US small-cap stocks were trading at a 20% discount to fair value, leaving plenty of room to grow!

On the other hand, large-cap stocks are currently overvalued, which means a correction may be imminent and there is little room for further growth.

Buying when the market is undervalued is a good way to increase your chances of seeing profits, so now might be a good time to add some small caps to your investment pool!

Three Small Cap Funds I’m Currently Watching

Choosing individual stocks to invest in is no easy feat! Instead, investing in small-cap ETFs is a great way to gain exposure to the market while diversifying your investments across a range of companies.

Here are three small-cap ETFs I’m currently watching.

iShares Russell 2000 ETF

The first is the iShares Russell 2000 ETF (IWM), a fund often considered a top choice for small-cap enthusiasts.

This is a US ETF, suitable for investors who are comfortable investing abroad. This ETF tracks the Russell 2000 Index, which consists of the 2,000 smallest stocks in the Russell 3000 Index.

iShares Russell 2000 ETF offers a diverse range of stocks from different sectors. Some of its top holdings include NOV Inc, Zebra Technologies Corp, IDEX Corp.

Investing in the iShares Russell 2000 ETF can be a smart move because it gives you broad exposure to a variety of high-potential small companies. The fund’s diversity helps mitigate some of the risks associated with individual small-cap stocks.

FTSE Small Cap Fund

If you want to stick to UK markets, this is for you! This fund tracks the FTSE Small Cap index, which includes companies that are smaller than those in the FTSE 100 or FTSE 250 but still have significant growth potential.

The FTSE Small Cap fund includes a variety of stocks from different sectors, providing broad exposure to smaller UK companies. Some notable holdings include: Dunelm Group Plc, Greggs Plc, Hollywood Bowl Group Plc.

The FTSE Small Cap Fund is ideal for those looking to diversify their portfolio by investing in smaller UK companies with significant growth potential.

The FTSE Small Cap Index has a history of outperforming the FTSE 100 Index over the long term.

iShares MSCI UK Small Cap UCITS ETF

Another great option for investors who want to stick to the UK stock market is the iShares MSCI UK Small Cap UCITS ETF. This is a fund that aims to track the performance of the MSCI UK Small Cap index.

The index tracks small-cap UK stocks such as Dechra Pharmaceuticals Plc, Marks and Spencer Group and Rightmove. Like the FTSE Small Cap, these stocks have strong growth potential and tend to perform well over the long term.

Investing in small-cap funds is best suited for investors who plan to hold onto their investments for the long term. Undervalued stocks can take years to reach their true value, so don’t expect any short-term gains!

Before adding small-cap ETFs to your portfolio, it is important to conduct thorough research, assess your risk appetite, and ensure the investment aligns with your strategy.

The MoneyMagpie website has a great guide on how to research stocks that you can use to get started.

Jasmine Birtles is the founder of the financial website MoneyMagpie.com. Get a FREE eBook on how to get shareholder value by signing up to their free investing newsletter here.