Finance

A Wall Street analyst says you should buy a Vanguard index fund before it surges 50%


Tom Lee is head of research at Fundstrat Global Advisors and is best known for his stock-picking product Granny Shots, which more than doubled investors’ returns. S&P 500 Index (SNPINDEX:^GSPC) Since its establishment in January 2019. Lee’s stellar performance has made him a reliable source of insight on the stock market.

Li recently told CNBC that small-cap stocks Russell 2000 It could soar 50% this year.This means the same upside Vanguard Russell 2000 ETF (Nasdaq: VTWO)What’s particularly interesting about this forecast is that some Wall Street analysts see a significant downside move for the broader S&P 500. For example, JPMorgan The index’s year-end target price is 4,200 points, down 20% from current levels.

With that in mind, now might be a good time to buy some shares of the Vanguard Russell 2000 ETF. Read on to learn more.

Why the Russell 2000 could outperform the S&P 500 in 2024 (and beyond)

this Russell 2000 is the most popular benchmark in the United States small capThis segment has underperformed relative to large-cap stocks in recent years. In fact, the Russell 2000 is up just 2% in 2024 and 22% over the past year. Meanwhile, the S&P 500 is up 10% in 2024 and 35% over the past year. But Tom Lee believes two tailwinds could lead to a resurgence in the Russell 2000, potentially pushing the index up 50% in 2024.

First, small-cap companies are more sensitive to interest rates than large-cap companies because they must borrow to a greater extent to fund growth, and they often have to accept less favorable loan terms. As a result, small-cap companies should be among the biggest beneficiaries when the Federal Reserve begins cutting interest rates, with policymakers expected to make the first cut later this year.

Second, Lee believes cheap valuations relative to the S&P 500 will drive demand for small-cap stocks and send the Russell 2000 higher. He compared the current valuation gap between the two indexes with the valuation gap that existed in 1999. The Russell 2000 has outperformed other indexes since then, and the S&P 500 has been in the lead, albeit not by much.

Investors should never get too focused on short-term price targets, but Lee does make some valid points, and he’s not the only one who thinks small-cap stocks deserve a closer look. wall street journal It was recently reported that for the first time since June 2021, more fund managers expect large-cap stocks to underperform small-cap stocks over the next 12 months.

What investors should know about the Vanguard Russell 2000 ETF

The Vanguard Russell 2000 ETF, as the name suggests, is designed to track the Russell 2000. The index fund measures the performance of more than 1,900 small-cap companies across all 11 market sectors, including value and growth stocks.

Listed below are the five largest holdings in the Vanguard Russell 2000 ETF by weight.

  1. super microcomputer: 1.5%

  2. Micro strategies: 0.5%

  3. The beauty of elves: 0.4%

  4. American Comfort System: 0.4%

  5. Light and Miracle: 0.4%

I mentioned that small caps have underperformed large caps over the past few years, but they have also underperformed over the past several decades. The Vanguard Russell 2000 has returned 1,060% over the past 30 years, with an annual compound interest rate of 8.5%. During the same period, the S&P 500 returned 1,880%, a compound annual interest rate of 10.5%.

Buying shares of an underperforming index fund may sound unappealing, but investors should remember the tailwinds mentioned earlier. A rate cut should be a boon to small-cap stocks. Furthermore, the segment looks cheap compared to large-cap stocks.Cited by Ed Clissold, chief U.S. strategist at Ned Davis Research Morningstar Corporation “Small-cap stocks are trading at close to their largest discounts on record,” November said.

In this case, investors should consider buying some shares of the Vanguard Russell 2000 ETF. The index fund has a below-average expense ratio of 0.1%, which means a $10,000 portfolio will have an annual fee of $10. And there’s good reason to believe that small-cap stocks could outperform large-cap stocks at current prices.

That said, I wouldn’t recommend putting a lot of money into the Vanguard Russell 2000 ETF. Personally, I would keep my positions relatively small, maybe 5% of my total portfolio. Furthermore, while Tom Lee estimates that the Russell 2000 could climb another 50% by 2024, the stars would have to align exactly for that to happen. Realistically, it could take several years for interest rates to fall and valuations to rationalize, so investors should only buy shares of the Vanguard Russell 2000 ETF if they’re prepared to hold on to them for a few years.

Should you invest $1,000 in Vanguard Scottsdale Funds – Vanguard Russell 2000 ETF right now?

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Janewin Does not hold any of the above stocks. The Motley Fool holds and recommends JPMorgan Chase, Light & Wonder and elf Beauty. Motley Fool has disclosure policy.

A Wall Street analyst says you should buy a Vanguard index fund before it surges 50% Originally published by The Motley Fool



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