Is This ETF a "Meme Stock" Now? Google Searches Are Spiking for One Small-Cap Fund

Investors have been increasingly looking for ways to join in on the rally in small-cap stocks, with Google searches for one small-cap ETF surging to a multiyear high last week.

Google search interest in the iShares Russell 2000 ETF — one of the most popular exchange-traded funds tracking the performance of 2,000 small and midsized companies in the Russell 3000 index — last week spiked to its highest level in over five years, according to Nicholas Colas, co-founder at DataTrek Research.

The search interest in IWM last week even jumped to levels beyond those seen in the iShares Core S&P 500 ETF during the COVID-19 stock-market crash in March 2020, Colas said in a Tuesday note. He wrote that IWM’s search volume last week was 50% higher than that of IVV four years ago (see chart below).

“There is an unusual amount of attention on U.S. small-cap stocks just now, but that’s not necessarily a bad thing in terms of future returns,” Colas wrote. “The 2020 bear market drew outsized interest in U.S. large caps, and they performed well over the next two years.”

And now that the Russell 2000’s underperformance versus the S&P 500 has started to reverse, investors are increasingly taking notice of small caps, Colas said. “Attention drives capital flows.”

To be sure, when that amount of investor focus and money pours into an individual equity, it’s fair to call it a “meme” stock, Colas noted. Yet when the interest and capital flow is going toward an entire segment of the stock market, it’s hard to “dismiss it outright as a fad,” he added.

“No doubt U.S. small caps will be volatile over the next few months, but we still believe they can do well over the rest of the third quarter of 2024,” he said. 

The Russell 2000 rose 1% on Tuesday to extend its recent bull run. The small-cap benchmark index has climbed more than 10% in the last 10 trading days — outperforming the S&P 500 by the largest 10-day margin since 1986, according to Dow Jones Market Data.

The broader stock market finished lower on Tuesday, with the S&P 500 shedding nearly 0.2% and the Dow Jones Industrial Average and Nasdaq Composite each losing around 0.1%, according to FactSet data.