Investing in small-cap companies can be a high-risk, high-reward proposition. These stocks offer the potential for significant growth, and small caps often emerge as momentum leaders when investors' risk appetites are rising. On the other hand, these smaller companies tend to lack the global exposure and diversity of their large-cap counterparts, and may also offer lower liquidity. However, with a little digging, it's possible to unearth some real hidden gems within the small-cap universe.
So far in 2023, the small-cap focused Russell 2000 iShares ETF (IWM) has been lagging the performance of its two well-known big-cap peers, the S&P 500 SPDR (SPY) and the Nasdaq QQQ Invesco ETF (QQQ). But with expectations for a U.S. recession fading by the day, supported by cooling inflation numbers, now might be a prudent time to add some exposure to fundamentally sound small-cap stocks.
