Measure S & P 500 The index recently reached a correction territory, indicated by a decrease of 10% of its maximum. But some other parts of the stock market are even stronger.
One large areas of weaker effect in recent market sales are shares with small caps. AND Russell 2000 The small cap index has been reduced by more than 18% from the peak of the end of 2024, and to be fair, there are some good reasons. For example, there is an increasing fear of recession, and this often affects fewer companies to a greater extent.
However, small drop supplies looked like a great opportunity for long -term investors at the beginning of the year, and they currently look even more attractive. Because Vanguard Russell 2000 ETF(Nasdaq: Vtwo) Currently is at the top of my shopping list.
As the name suggests, the Vanguard Russell 2000 ETF is an index fund that follows Russell 2000which is widely considered the best indicator that small cap supplies do.
The medium market limit to Russell 2000 is $ 3.3 billion, and although this is a weighted index, no stock makes up more than 0.6% fund, a sharp contrast of a mega-cap-Heavy S&P 500. The best fund share is a fund Spouts Farmers Market,, Treacherousand Vaxcyte. If you are not too familiar with any of them, it is a type-shair ETF with small caps like this allows you to expose yourself to a wide range of smaller companies without the need to investigate investment.
Like other funds of the Vanguard Index, this is a very cheap ETF, with 0.07% Cost ratio. This means that for every $ 10,000 you are investing, the annual investment costs are only $ 7. (This is not a fee you have to pay – it will simply affect the fund’s performance over time.)
Vanguard Russell 2000 ETF was inexpensive a year ago and became even cheaper. In the early 2024, small caps traded for their lowest price assessment in the book compared to their colleagues in major limitations since the late 1990s. However, due to the artificial intelligence (AI)-a mega-Cap tech supply last year, the GAP has become only wider. Even this year, with the S&P 500 on correction territory, Russell 2000 has achieved worse.
This resulted in a wide gap between the values between the stock of small caps and large caps. Just look at some key metrics:
Metric
S & P 500 Media
Russell 2000 median
P/e ratio
27.5
17.8
P/b ratio
5.0
2.0
Ear growth rate
18.9%
14.3%
Data source: Vanguard. From 1/31/2025.
This is of the latest data from Vanguard at the end of January. The gaps have expanded even more since then in a recent correction. Also notice that, although typical S&P 500 supplies grow faster, it is not a big enough difference to justify such a wide gap in value.
To be fair, I don’t think gap won’t completely close. The S&P 500 has a disproportionate amount of high growth (read: high value) of technological stocks and deserves a little premium. But this is the widest gap between the two indexes in a long time, and as I will discuss in the next section, small caps could make up for.
First, although shares with small drops disproportionately hit the fears of recession, tariff uncertainty and disappointing economic data, this could be the case if these things would turn.
It is also worth noting that expectations for reducing interest rates of federal reserves for this year have significantly increased in the last few weeks, and medium expectations now require a decrease in a rate of three or four quarters, which is more than expectations of just one at the beginning of the year.
Small caps could be a big winner because the footsteps fall. As a group, small hats rely more on borrowed money, and lower interest rates could surely help. In addition, as the footsteps fall, money should start coming out of things like treasure troves and CDs to go into the market, which could be a great help for “more risky” supplies like small caps.
Finally, there are prospects for things such as tax reduction and regulatory reforms that are part of the Trump administration plans. Once the dust is shrugs on the tariff uncertainty, it could be a big boost for smaller companies.
To be completely clear, I have no idea if the market turbulence and correction are close to the end. If economic data get worse or tariff insecurity intensifies, just to list some examples, things could get worse before they are better. But from a long -term perspective, the Russell 2000 ETF looks like a great opportunity at the moment, and I am convinced that long -term investors who now take advantage of the advantage will be glad they have succeeded.
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