by Ian Cooper

Things are looking good for small cap stocks.

The Russell 2000 just closed at a record high, topping its previous high in 2021. And it’s also on track for its seventh straight week of gains, which hasn’t happened since 2020.

All thanks to interest rate cuts, and the potential for another two this year.

In fact, history shows that rate cuts often give small caps a boost. Part of the reason for that is these companies often rely on debt, and will therefore benefit from lower borrowing costs.  Plus, they’ll have easier access to capital, boosting potential profitability. Some argue that small caps are some of the strongest beneficiaries of rate cuts.

Seeing that we may get another two cuts this year, investors may want to jump into hot small cap stocks, or even jump into exchange traded funds (ETFs) such as:

Vanguard Small-Cap ETF (VB)

With an expense ratio of 0.05%, the Vanguard Small-Cap ETF tracks the performance of the CRSP US Small Cap Index. It also holds 1,336 stocks, some of which include SoFi Technologies, NRG Energy, Atmos Energy, Reddit Inc., and Pure Storage.

Even better, it pays a quarterly dividend. On July 2, it paid a dividend of just over 78 cents. Before that, it paid a dividend of just over 91 cents on March 31.

Granted, the ETF did just rocket from about $190 to $258.56, but with more interest rate cuts on the way, it could test higher highs.

iShares Russell 2000 ETF (IWM)

With an expense ratio of 0.19%, the iShares Russell 2000 ETF tracks small cap US companies. It holds 1,965 stocks, including Credo Technology, Bloom Energy, IONQ Inc., Fabrinet, and Rambus Inc. And it pays a quarterly dividend.

Most recently, it paid a dividend of just over 67 cents on September 19. Before that, it paid a dividend of just over 57 cents on June 20.

The IWM just ran from an April low of about $170 to $244.28. Here, too, we do expect for it to rally to higher highs on rate cut expectations.

Schwab US Small Cap ETF (SCHA)

With an expense ratio of 0.04%, the Schwab US Small Cap ETF tracks the total return of the Dow Jones US Small Cap Total Stock Market Index. It holds 1,687 stocks, including Reddit, Credo Technology, Affirm Holdings, Bloom Energy, and IONQ Inc.

It also pays a quarterly dividend. On June 30, it paid a dividend of just over eight cents. Before that, it paid a dividend of just over five cents on March 31.

After bottoming out at around $20 in April, the SCHA ETF is now up to $28.23. We do expect for it to push aggressively higher with more rate cuts on the way.