In an exclusive interview with Benzinga, Paul Eitelman, Chief Investment Strategist for North America at Russell Investments, shared his measured approach to navigating the small-cap stock market as we head towards 2025. While acknowledging the long-term benefits of holding small-cap stocks, Eitelman cautions investors about the sector’s sensitivity to macroeconomic shifts. He describes the current landscape as a “two-scenario problem,” with economists debating whether the U.S. economy will slow towards a soft or a hard landing.
Small-cap stocks, known for their volatile balance sheets, are particularly vulnerable to recessions. However, they are also positioned to outperform in a soft landing scenario. Eitelman recommends a cautious approach to tactical positioning during this period of high uncertainty.
Despite the short-term challenges, Eitelman highlights the compelling long-term case for investing in small-cap companies. He points out that small caps are trading at their most attractive relative valuations to large caps since the late 1990s. This, coupled with the market’s low stock-level correlations, creates fertile ground for active management. Eitelman believes that skilled active managers can effectively navigate this challenging landscape, limiting exposure to unprofitable companies and capitalizing on undervalued opportunities.
The Russell 2000 Index, a popular benchmark for measuring small-cap equity performance in the U.S. stock market, tracks the smallest 2,000 companies, offering a clear view of the small-cap segment. Popular funds tracking this index include the iShares Russell 2000 ETF (IWM), the Vanguard Russell 2000 ETF (VTWO), and the Avantis US Small Cap Equity ETF (AVSC).
The Benzinga SmallCAP Conference, taking place on October 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile, is an unparalleled opportunity to delve deeper into the world of small-cap investing. Attendees will have access to CEO presentations, one-on-one meetings with investors, and valuable insights from top financial experts. Whether you’re a trader, entrepreneur, or investor, this event offers invaluable opportunities to expand your portfolio and network with industry leaders. Secure your spot and get your tickets today!
