Small-cap stocks have been soaring lately, with the Russell 2000 Index up more than 20 percent year-to-date and hitting a string of new highs this month. But could the run in small-cap stocks be nearing an end? Not according to investment strategist Kristina Hooper of Allianz Global Investors.
“Over the shorter term, we’re excited about small caps,” she told “Nightly Business Report.”
“There [are] some positive aspects of small caps, namely that typically in a rising rate environment, small caps have outperformed. That’s typically coupled with an economic recovery.”
Hooper also likes small-cap stocks as a long-term investment, because she said we’ll be in an “environment of financial repression”–where rates are held artificially low–for a long time.
“That really necessitates moving out on the risk spectrum, having exposure to a different variety of risk assets and that includes small caps,” she added.
Other financial experts, like Oppenheimer Asset Management’s Carter Worth, think the Russell is stretched at key levels. While some people see the strength in the index as a sign it is getting better, Worth thinks it is “more dangerous,” he told CNBC.
However, Hooper believes investors are overlooking the fact that many companies are sitting on record levels of cash.
(Read More: Companies Sitting on Cash Pile of Over $1 Trillion)
“Typically one of the significant ways they deploy that cash is through purchases, mergers, acquisitions. And that could really benefit small-cap stocks,” she said.
Within small caps, Hooper thinks cyclical stocks like industrials and materials have attractive valuations right now. She also suggests investors look for some dividend income in small-cap stocks.
When it comes to the percentage of small-cap stocks investors should have in their portfolio, Hooper said it depends on the investor’s risk profile. But she stressed that any risk assets should be diversified.