Small-cap stocks: Why they are currently so cheap and the best ETFs for the next rally

Small-cap stocks: Why they are currently so cheap and the best ETFs for the next rally

According to a report by www.boerse-online.de, investment research firm Morningstar has revealed that small-cap stocks are historically cheap and could soon rebound in value. However, expert Ed Clissold of Ned Davis Research emphasizes that just because a stock is cheap doesn't mean it's a good buy. He notes that small-cap stocks seem cheap right now, and for good reason.

According to Morningstar, small-cap stocks are those that are in the bottom 10% of the stock market by capitalization. Despite their potential for rapid growth, they can be volatile and are often more affected by interest rates and economic changes. Additionally, many of them are not profitable or heavily indebted. In recent months, small-cap stocks have lost significant value relative to large companies, but there has also been a small rally on hopes that interest rates will stop rising and the economy may recover.

A possible cut in interest rates and a stable economic situation could lead to a new upward movement in small-cap stocks, according to Morningstar. Additionally, ETFs such as the iShares MSCI World Small Cap UCITS ETF and the Xtrackers MSCI Europe Small Cap UCITS ETF were cited as good ways to benefit from a potential small cap rally. Both ETFs have a history of producing gains, offering investors a chance to benefit from the expected recovery in small-cap stocks. However, investors should note that small cap ETFs can be somewhat more volatile.

Morningstar's news could have a positive impact on the financial market and investors as it points to attractive entry opportunities into the small-cap sector. Considering investing in ETFs based on small-cap stocks could offer investors the opportunity to benefit from an eventual recovery in this segment of the market.