A sustainable economic recovery is likely to not be intact until financial institutions start lending and the credit markets loosen up, at which time small-cap exchange traded funds (ETFs), like the iShares Russell 2000 (NYSE:IYW), the PowerShares Dynamic Small Cap (NYSE:PJM), the Vanguard Small-Cap ETF (NYSE:VBR) and the PowerShares Zacks Small Cap Portfolio Fund (NYSE:PZJ) will reap the benefits.
Historically speaking, small caps have been the leader in sustainable economic recoveries. One reason behind this is that small-cap companies, which generally have market values of under $2 billion, are more nimble and quicker to react to changes in market conditions and therefore are more likely to reap the growth benefits of increased lending than large-cap companies.
According to a recent release by the Federal Reserve, bank loans in general are down more than 20 percent from their 2008 peaks, suggesting that small-cap companies are still growth restricted due to lack of much needed credit to grow.
Although enhanced financial regulations may not enable banks to lend at the same rate as seen in 2008, there is still plenty of credit that can be made available. Once the credit markets open back up, small-cap ETFs, like the ones mentioned above, are likely to be the benefactors.
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.