Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
Much of the attention on this year’s bull run in stocks has focused on AI-fueled Big Tech and its rising influence in benchmarks such as the S&P 500 Index. But while Wall Street remains obsessed with the largest companies, the smallest slice of the market-cap pie has quietly pulled ahead of the pack in recent weeks.
Using a set of ETFs shows that so-called micro-cap stocks – the smallest of the small – are now this year’s performance leader. The iShares Micro-Cap ETF (NYSE:IWC) (IWC) has rallied 19.2% year to date through Wednesday’s close (Oct. 8). That’s moderately above the 17.3% rise for mega-cap shares (OEF) and the market benchmark via the SPDR S&P 500 ETF (NYSE:SPY), which is up 15.9%.
Micro-caps (IWC) had been trailing the market (SPY) and mega-caps (OEF) by a wide margin for much of the year. But over the past month or so, micro-caps have surged and have recently taken the lead over their larger counterparts.
Some of the relative strength may be a function of encouraging analysis from Wall Street of late. For example, in September, Goldman Sachs Asset Management analysts advised:
“For the active investor, we believe there are an abundance of interesting opportunities [in small-cap markets].”
Whatever the reason, smaller is better these days. The average market cap for IWC’s portfolio is just $714 million, according to Morningstar.com. By comparison, the standard “small-cap” holdings for iShares Core S&P Small-Cap ETF (NYSE:IJR) are substantially higher at $3.3 billion. Compared with the SPDR S&P 500 ETF (SPY), which weighs in with an average market cap of $439 billion, the micro-cap holdings via IWC are a rounding error.
What’s driving IWC’s winning streak? Sector tilts in the smallest corners of the market appear to be part of the answer. Nearly one-quarter of the portfolio is in healthcare, followed by one-fifth in financial services via Morningstar.com data.