The anticipation of interest rate cuts may skew equities market strength toward the upside. But interest rate news will continue to sway small-cap indexes. That said, in the current market environment, investors might consider two specific Invesco ETFs for ideal small-cap exposure.
Small-cap indexes like the Russell 2000 were trending higher. But the start of the second quarter added a dose of volatility as the higher-for-longer interest rate narrative returned to the capital markets. The end of April saw the index resume its upward trend. But the correction served as a reminder to investors: Volatility is always omnipresent.
“A renewed bout of volatility gripped US stocks in the final stretch of May, with the market finishing higher amid a rotation between technology and other industries,” confirmed a Bloomberg report.
Small-cap equities, in particular, add extra sensitivity to broad market moves whether indexes head up or down. The start of 2024 saw a renewed interest in growth exposure that small-cap equities can provide. But volatility stemming from interest rate decisions will continue to be a major factor moving through the rest of the year.
“Renewed macroeconomic volatility could, in particular, temper the share price growth of many high-flying growth stocks.” Investorplace noted.
Nonetheless, investors shouldn’t wait until market volatility subsides before getting small-cap exposure. They should consider the Invesco S&P SmallCap Low Volatility ETF (XSLV ). The fund seeks to track the investment results of the S&P SmallCap 600 Low Volatility Index. The index is compiled, maintained, and calculated by Standard & Poor’s. It consists of 120 out of 600 small-cap securities from the S&P SmallCap 600 Index with the lowest realized volatility over the past 12 months.
Factor-Based Small-Cap Exposure
For small-cap exposure that adds a strategic component via factor-based investing, investors can also opt for the Invesco S&P SmallCap 600 GARP ETF (GRPZ ). The fund is based on the S&P SmallCap 600 GARP Index.
The fund composes approximately 90 securities in S&P SmallCap 600 Index with “relatively high quality and value composite scores” calculated pursuant to the index methodology. As currently constructed, the fund skews toward small-cap equities that exhibit value, growth, and a factor blend.
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