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Red-Hot Small-Cap ETFs to Bet on as Biden Takes Over Office

The euphoria in the Wall Street was clearly visible as President Joe Biden was sworn into office peacefully. The market rallied to a record close on expectations of additional fiscal stimulus aid and wider vaccine rollout. Thus, the Dow Jones Industrial Average rose 0.8% to a new closing high on Jan 20. The other two broad indices, the S&P 500 and the Nasdaq Composite, also jumped 1.4% and nearly 2% to see record closes.

Going on, the small-capitalization Russell 2,000 Index was also up 0.4% yesterday. It has risen 28.3% over the past year. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to outperform when the economy improves.

Amid the pandemic, the central bank has pledged to hold rates at a near-zero level and will continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment levels.It is worth noting here that low rates are particularly beneficial for micro-cap stocks as it helps ramp up economic activities and boost domestically-focused companies. Moving on, the Fed’s stand on the inflation-related policies is expected to fuel bullish sentiments.

The beginning of the inoculation process among people is buoying optimism. Dr. Rochelle Walensky, Biden’s choice to lead the Centers for Disease Control and Prevention, recently commented that she’s confident the United States will be equipped with sufficient vaccine doses to meet the Biden administration’s aim of vaccinating 100 million people in 100 days, per a CNBC article.

Going on, democrats have taken control of the U.S. Senate with two Georgia victories. Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural development and boosting jobs in the near future.

Meanwhile, many economists and financial experts fear that complete control of Democrats over the Congress may lead to implementation of higher corporate taxation and stricter regulations on big technology and communication providers. However, it is being expected that such changes will not be imposed immediately.

Biden has announced details of his $1.9-TRILLION stimulus plan, which has been named the American Rescue Plan. The relief package will extend the additional federal unemployment payment through September and will raise it to $400 per week. The new plan also includes $1,400 of direct payments to many Americans and extends the federal moratoriums on evictions and foreclosures through September, per a CNBC article.

The stimulus proposal also allocates $350 billion in state and local governments support, sets aside around $70 billion for coronavirus testing and vaccination programs and increases the federal minimum wage to $15 per hour, according to the same CNBC article. It is worth noting here that there is ambiguity regarding whether Biden’s proposal will be approved by Congress.

Increasing hopes of an additional stimulus package, Janet Yellen, President-elect Biden’s designated nominee for Treasury Secretary and a former chair of the Federal Reserve has urged to ‘act big’ during her appearance before the Senate Finance Committee on Jan 19, per a CNBC article. She has requested the federal government to pass a large stimulus to support the economy.

Thus, chances of another trench of coronavirus-aid package, an ultra-dovish monetary stance maintained by the Fed, and record low benchmark interest rate of 0-0.25% are making a strong case in favor of small-cap ETFs by supporting faster U.S. economic recovery in 2021.

Red-Hot Small-Cap ETFs to Consider

For investors seeking to capitalize on this opportunity, the following small-cap ETFs could be strong pure plays:

Vanguard Small-Cap Growth ETF VBK

This fund follows the CRSP US Small Cap Growth Index. The product has managed assets worth $15.35 billion, and charges 7 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1 (Srong Buy), with a Medium-risk outlook (read: 5 Top-Ranked ETFs That Investors Can Bet On).

iShares Russell 2000 Growth ETF IWO

This fund tracks the Russell 2000 Growth Index and offers exposure to small-cap companies that have earnings growth expectations above average rate relative to the market. The product has managed assets worth $12.79 billion and charges 24 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1, with a High-risk outlook (read: 5 Best ETF Investing Ideas for 2021).

iShares S&P Small-Cap 600 Growth ETF IJT

This product tracks the S&P SmallCap 600 Growth Index. The product has managed assets worth $6.05 billion and charges 18 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1, with a Medium-risk outlook

SPDR S&P 600 Small Cap Growth ETF SLYG

This ETF follows The S&P SmallCap 600 Growth Index, which comprises stocks that exhibit the strongest growth characteristics based on sales growth, earnings change to price and momentum. The product has managed assets worth $2.16 billion and charges 15 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1, with a Medium-risk outlook

iShares Morningstar Small-Cap Growth ETF JKK

This product follows the Morningstar US Small Growth Index. It will seek to track a new underlying index, the Morningstar US Small Cap Broad Growth Extended Index no earlier than Mar 19, 2021 and cease to track the Morningstar US Small Growth Index.  The product has managed assets worth $794 million, and charges 30 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1, with a Medium-risk outlook.

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iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
iShares S&P SmallCap 600 Growth ETF (IJT): ETF Research Reports
 
iShares Morningstar SmallCap Growth ETF (JKK): ETF Research Reports
 
Vanguard SmallCap Growth ETF (VBK): ETF Research Reports
 
SPDR S&P 600 Small Cap Growth ETF (SLYG): ETF Research Reports
 
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