“Small-Caps Launch to a Higher High, Leaving Large-Caps in the Rearview!

In recent weeks, small cap stocks have been making an impressive run up. Many small companies have been outperforming larger companies, causing investors to flock to small caps for the potential for higher returns. The surge in small-caps has been so strong that some financial advisors are now suggesting that investors “leave the large cap stocks in the dust.” The trend of small caps outshining the large companies has been ongoing throughout 2020. Small companies outpaced the S&P 500 by 600 basis points and the Russell 2000 by 350 basis points. This comes as no surprise as small companies often tend to be more nimble, adapt quickly to changes in the market, and have more room to grow. For investors, small caps offer a great opportunity. Small cap stocks tend to be more volatile, but can offer higher potential rewards for investors who have the inclination to take on added risk. If the stock of a small company outperforms expectations, the returns can be especially large. While small-cap stocks may be more volatile, this market sector also offers the chance to diversify investments as well. As far as which small cap stocks are poised to continue the trend of outperforming their larger counterparts, investors should keep on the lookout for companies in the tech, energy, retail and communication sectors, as well as companies who are providing solutions for new and developing industries. The surge in small caps is something investors could not have predicted, yet is proving to be one of the greatest market stories of 2020. Investing in small caps can be a great way to diversify investments and gain more exposure to high-growth sectors and promising companies. With this in mind, it may be worth considering leaving the large caps in the dust and looking to increase investments in small cap stocks.

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