Small Caps Look Way Too Cheap. These 2 ETFs Look Like Great Year-end Buys

The small caps are starting to get cheap again after the latest round of market selling concentrated in the AI growth names. Undoubtedly, the small and mid-caps can be a rather turbulent ride compared to the larger caps, but, regardless, investors looking to diversify or tilt their portfolios just a bit more in the direction of value might wish to capitalize on the recent wave of selling that’s hit the smaller-cap scene of late.

In this piece, we’ll check in on a pair of small-cap ETFs, which, I think, might be the best way to play the smaller, underappreciated names after taking a bit of a spill for the month of November. At this juncture, I view a lot of the smaller, underrated names as oversold and potentially overdue for a bit of a bounce.

So, if you’re feeling a bit deterred by higher valuations in the large caps (as well as their exposure to the fading AI trade) and want to broaden your bets to some of the underrepresented plays, consider the following one-stop-shop plays:

iShares Core S&P Small-Cap ETF

iShares Core S&P Small-Cap ETF (NYSEARCA:IJR) is one of the most popular small-cap ETFs for a reason. It’s a low-cost way to bet on a broad number of smaller American stocks, with market caps well below the $1 billion mark. As an added bonus, the iShares Core S&P Small-Cap ETF boasts a nice 1.9% dividend yield, thanks to the index’s focus on companies that are actually making a profit.

Undoubtedly, odds are you haven’t heard of any of the names in the top-10 holdings list, but that’s all right, especially since these aren’t exactly the names that receive all too much coverage, given their size and the much lower trading volumes they get compared to the giants, who’ve become so influential to the market.

With shares of the iShares Core S&P Small-Cap ETF retreating close to 6% off this year’s highs, I think there’s an opportunity to buy the dip, though investors should be ready for more choppiness, as the ETF boasts a 1.26 beta, making for a rather choppy ride. Once the AI trade heats up again, I think the appetite for growthier small-cap names could ignite again. Though I could be wrong, I view the IJR as a great way to broaden your exposure to U.S. equities for cheap.

iShares Russell 2000 ETF

iShares Russell 2000 ETF (NYSEARCA:IWM) is another go-to play for investors seeking to bet on the small-cap scene. The ETF, which follows the Russell 2000, provides even broader exposure to the smaller-cap universe. As the name suggests, the ETF follows an index comprised of a whopping 2,000 stocks, which is a subset of the Russel 3,000 index.

Undoubtedly, if you want smaller slices of a vast number of names, the iShares Russel 2000 ETF might be the better small-cap ETF to go with. While the price of admission (expense ratio) is a bit higher, it’s worth paying, in my view, if you want broader exposure, a bit more of a growth jolt (many names aren’t yet profitable), and don’t mind the smaller 1% dividend yield.

Personally, I don’t think you can go wrong with either ETF, especially since both have been on the retreat in recent weeks. If you value income above all else, the iShares Core S&P Small-Cap ETF might have the slight edge, however.

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