Giant S&P 500 "Magnificent Seven" stocks stole all the attention this year. But hope you didn't overlook the "Minuscule Seven" small-stock rally.
Seven stocks in the SPDR Portfolio S&P 600 Small Cap ETF, including cosmetics maker ELF Beauty, teen apparel seller Abercrombie & Fitch and computer chip company Rambus, generated the largest pieces of the index's $113 billion small-cap rally this year, says an Investor's Business daily analysis of data from S&P Global Market Intelligence and MarketSmith.
These small stocks — each valued at less than $8 billion — gained an average 125% this year. Those big gains added a total $22.9 billion in market value. All together, just these seven stocks, contributed more than 20% of the total gains in the small-cap index.
"It's easy to have an overexposure to certain large-cap stocks, particularly those in the 'Magnificent Seven' which are found within many popular large-cap and tech-oriented ETFs," said Roxanna Islam, head of sector research at Vetta Fi. "Investors need exposure to small-caps to balance that out."
The Big Rise Of Small Stocks
Investors' infatuation with the giant tech stocks in the S&P 500 this year makes total sense. But a shift is happening.
The Invesco QQQ Trust ETF is up a whopping 51% this year. That easily tops the year-to-date 22% gain of the SPDR S&P 500 ETF Trust and 12% rise of the SPDR Portfolio S&P 600 Small Cap ETF.
But here's the important change: Small-company shares are on a tear from their low this year on Oct. 27. Since that time, small-company shares surged 20% — outpacing the QQQ's 17% and SPY's 14% gains.
"It took just 48 days for (small stocks measured by) the Russell 2,000 (index) to go from a 52-week low to a 52-week high," said Bespoke Investment Group. "Remarkably, that was the shortest turnaround time ever for the Russell to go from 52-week low to 52-week high."
But how do you find small-company winners?
Looking For Small-Cap Champs
Investors can always search for individual small-stock winners. But ETFs are a good way to hedge your bets.
Clearly, had you spotted small-cap Abercrombie & Fitch this year, you'd be celebrating. Shares are up nearly 300% this year. That even outperforms the year-to-date gain of AI wunderkind Nvidia this year. Abercrombie's gain added roughly $3.5 billion in market value this year.
And that's not even the top small-cap value gainer. ELF Beauty shares added more than $5 billion in market value thanks to a 160% gain this year. But picking these winners amid a field of 600 stocks is tough. And choosing the wrong small stock can sting. Shares of Advance Auto Parts are down nearly 60% this year. That's wiped out $5 billion in market value.
Choosing A Small-Cap ETF
Both Abercrombie & Fitch and ELF Beauty are part of the SPDR Portfolio S&P 600 Small Cap ETF. And the fund only charges 0.3% annually. But there are other options.
Vetta Fi's Islam mentions the ETF with the most assets with similar holdings as SPSM: The $73.4 billion-in-assets iShares Core S&P Small-Cap ETF, which charges 0.06% annually. For a broader portfolio, there's iShares Russell 2000 ETF, charging 0.19%.
Another approach? "It is also common to seek out small-cap with a value or growth tilt," Islam says. Those options include the Vanguard Small Cap Growth ETF or the Vanguard Small Cap Value ETF. Small growth stocks measured by the Vanguard ETF are up 18% this year, outperforming small value ones up just 12% this year.
But no matter which approach you take, adding small-caps could make a big difference to your portfolio if the infatuation with large stocks dies down. And it likely will.
Minuscule Seven: Biggest Small-Cap Contributions
SPDR Portfolio S&P 600 Small Cap ETF members adding most market value this year
| Company | Ticker | Year-to-date % ch. | YTD market value ch. ($ billions) | Sector |
|---|---|---|---|---|
| e.l.f. Beauty | 161.6% | $5.1 | Consumer Staples | |
| Abercrombie & Fitch | 292.4 | $3.4 | Consumer Discretionary | |
| Rambus | 81.0 | $3.1 | Information Technology | |
| Comfort Systems USA | 79.9 | $3.3 | Industrials | |
| Meritage Homes | 85.8 | $2.9 | Consumer Discretionary | |
| Installed Building Products | 112.5 | $2.7 | Consumer Discretionary | |
| DoubleVerify | 61.7 | $2.4 | Information Technology |
