The same types of stocks don't always keep winning forever. For most of the past 15 years, U.S. large-cap growth stocks (such as major tech companies) have been some of the best places to invest. But that might not be true in the future.
According to Vanguard's latest market forecast, U.S. small-cap stocks will deliver annualized returns of 5.8% to 7.8% for the next 10 years, outperforming U.S. large-cap stocks (which are expected to return 4.8% to 6.8%). Other recent research from Fidelity shows that small-cap stocks have been demonstrating stronger earnings and cheap valuations. That all could add up to stronger performance in the long run.
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If you want to buy small-cap stocks to fit this strategy, which exchange-traded funds (ETFs) should you choose? Let's look at two popular ETFs: the iShares Russell 2000 ETF (NYSEMKT: IWM) and the Vanguard Small-Cap Value ETF (NYSEMKT: VBR). Both small-cap ETFs have outperformed the S&P 500 index and the tech-heavy Nasdaq-100 index year to date.
Let's take a closer look at these small-cap ETFs and see which could be the best choice for long-term investors in the next 10 years.
The iShares Russell 2000 ETF (IWM) could be a good choice because it's simple and broadly diversified. It lets you buy "all" the small caps at once. This fund owns 1,974 stocks and intends to track the performance of the Russell 2000 index. During the last 26 years, since the fund's inception in May 2000, it has delivered average annual returns of 8.7%. In the past three years, it's delivered 18%, and in the past year, it's delivered a return of about 41%.
This fund charges an expense ratio of 0.19%, which is a bit higher than most low-cost index funds. But it ranks on the list of best small-cap ETFs and could be worth considering for long-term investors who want exposure to a diversified portfolio of small-cap stocks.
The Vanguard Small-Cap Value ETF is a targeted way to invest in value-oriented small-cap stocks. This ETF could also be a good bet based on other Vanguard research projections, which show U.S. value stocks outperforming growth stocks for the next 10 years.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
