Betting Big on Small Caps: Stan Druckenmiller's Shift and the Rise of Small-Cap Stocks

Betting Big on Small Caps

As of the end of the first quarter, Druckenmiller's biggest position was call options on the iShares Russell 2000 ETF (NYSEMKT: IWM).

Why Small Caps Have Lagged Behind

• Smaller companies are more sensitive to interest rates
• Small-cap stocks are more sensitive to economic downturns

But with potential interest rate cuts and improved economic outlook, small-cap stocks could offer new opportunities for investors.

The Case for Investing in Small Caps Now

1. Small caps historically outperform in the long run
2. Valuation gap between small and large caps is at historically low levels

Adding a small-cap tilt to your portfolio now could be a strategic move.