Want To Take Advantage Of The January Effect? 2 Small Cap ETFs Can Help

 | Dec 29, 2020 11:32

Many investors look for anomalies or systematic patterns—often described as influences due to seasonality—to beat the market. One of these is the January effect which suggests that returns, especially in small-cap stocks, during the first month of the new year, are statistically larger than during other months.

Seminal research by Rozeff and Kinney (1976), which looks at prices of companies listed on the New York Stock Exchange, highlighted that in most years between 1904-74, over one-third of the annual returns came in January alone.

Since then, both academics and practitioners who have continued similar studies have suggested various explanations for the January effect: end-of-year tax considerations by market participants that lead to rotations and portfolio rebalancing mostly by fund managers. Others have argued that this seasonal effect has evolved and now possibly starts earlier, in December.

Making forecasts about what January 2021 may bring for equity investors, especially after a roller-coaster year like 2020, is no small feat. However, those investors who believe this seasonal pattern could hold true in 2021 too, may want to research small-cap shares and exchange-traded funds (ETFs) further.

We previously discussed small-caps and introduced funds that focus both on US shares}} as well as {{art-200544982||global companies. Today's article extends the discussion to two funds that could benefit from the further rotation out of large-caps into small-caps.

However, we have to point out that the definition of a small-cap can easily differ between brokers as well as countries. Also, many ETFs whose names suggest a focus on small-caps, in fact, include mid-cap businesses, too.

With that information in mind, here are today’s two ETFs:

h2 1. Vanguard S&P Small-Cap 600 Growth ETF/h2
  • Current price: $198.52
  • 52-week range: $99.36 - $199.38
  • Dividend Yield: 0.65%
  • Expense ratio: 0.15%

The Vanguard S&P Small-Cap 600 Growth ETF (NYSE:VIOG) invests in a range of growth stocks found in the S&P SmallCap 600 index. The fund started trading in Sept. 2010 and currently has $358 million under management.