SPSM ETF

In the last year, small-cap stocks have not performed as well as large-cap stocks. As of January 6, 2025, the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) has increased by 9.8%, while the SPDR S&P 500 ETF Trust (SPY) has risen by 25.4%.

I suggest investing in the SPDR® Portfolio S&P 600™ Small Cap ETF because Trump's tax cuts are likely to help small-cap companies. Historically, stocks tend to increase in value from November until the presidential inauguration, which makes it a good time to invest despite high market prices. Small-cap companies are expected to gain the most from Trump's policies and are currently priced lower than their average P/E over the past ten years.

I still recommend buying SPSM because it has a good price, strong diversification, and positive technical signals, even though it has not performed well after past Fed rate cuts. SPSM gives investors affordable access to small-cap US stocks with a low expense ratio of 0.03% and an attractive PEG ratio below 1.5. The ETF's sector distribution helps with diversification, focusing more on Financials, Industrials, and Real Estate, while having less in Information Technology.

Small-cap stocks are currently valued much lower compared to the S&P 500. A decrease in interest rates might be the factor that helps them perform much better.

The ongoing bull market has benefited the largest companies globally, leaving smaller ones struggling. However, in July, investors began a significant shift towards small-cap stocks.

In July, the S&P 500 experienced only slight growth, while smaller companies enjoyed a significant increase in their share prices. This trend towards smaller companies might be in its early stages, especially as the money supply increases and the difference in valuations stays large.

Small, mid, value, yield: is "the rotation" taking hold?

SPSM underperformed mid-cap and large-cap peers in the past 2 years. Earnings growth expected to improve significantly in 2025 and 2026. SPSM's forward P/E ratio is attractive, but may still lag behind the S&P 500 index in the long run.

VettaFi's Head of Research Todd Rosenbluth discussed the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) on this week's “ETF of the Week” podcast with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.