As the stock market has moved to new highs in all the major indexes, investors have turned their interest to some strange, underperforming parts of the market. The latest example: micro-cap stocks.
The iShares Micro-Cap ETF (IWC) has been around for more than a decade but has attracted little interest — until recently. And with good reason: it owns the smallest of publicly traded companies, the bottom 1,000 of the small-cap benchmark Russell 2000 index and the remaining 1,000 or so stocks that are even smaller than those in the Russell 2000.
Not pink sheets, but the very bottom of publicly traded companies. We're talking companies with typical market caps between $50 million and $300 million.
In the last one month, these micro-caps have notably outperformed the broader market, and are again at a historic high Thursday:
What's going on?
"You have a confluence of the reflation trade, rising rates and the tax cut trade," said Martin Small, U.S. head of iShares at BlackRock. "All these things are positive for small- and micro-cap stocks."
All true, particularly the rotation from large caps to small caps, but there may be other factors helping out:
Putting it into an ETF wrapper — and allowing it to be traded on platforms provided by brokerage firms — is one of the only relatively safe ways to get into these darker corners of the market.
It also makes it easier for investment advisors to get exposure, Small tells me: "If you want micro-cap exposure, it's irresponsible to do it other than through the index."