One of the most popular posts thus far in 2010 was a recent article I published on Small Cap ETF performance. Specifically, I looked at the Russell 2K versus the S&P, Dow and NASDAQ using the mainstream ETFs IWM, SPY, DIA, and QQQQ.
At the time we noticed a clear and persistent trend that small caps were leading the market. Since that article was published in late April we've seen a dramatic change in trend. The markets have lost as much as 17% from the peak to trough so I thought it would be a good idea to see how this group shaped up through the roller coaster over the past 60 days.
Take a look at the chart below. You can see that the performance chart shows that IWM continues to lead all major indices. Typically, we see leaders continue to lead and laggards continue to lag. So what's the impact here for you?
What's interesting is that market participants already know that IWM is the leader and they expect this to continue too. This is represented in the price of IWM options — they are priced more expensive than SPY or QQQQ options of similar characteristics. Bottom line, expect small caps to continue to out perform.
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