Small Caps vs Big Tech: The Rates Problem, Dissected
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Since the Russell 2000 peaked on 14 August, IWM has fallen 7.5% while QQQ has risen 3.9%.
Quant Insight’s factor attribution shows why.
Falling risk aversion helped both, contributing +1.8% to IWM and +2.6% to QQQ. Rates did the damage: combining rate volatility, inflation and the 10Y, the drag was -2.8% for IWM versus -0.1% for QQQ, nearly three-quarters of the macro attribution gap.
The effect is broad.
Rates dragged on 10 of 11 Russell 2000 sectors, with Utilities, Discretionary and Real Estate at -5% to -6% for the average stock and Energy the only exception at +3.0%. IWM’s combined rates sensitivity is at the 3rd percentile of five years; SPY’s is near neutral.
81% of Russell 2000 stocks carry negative rates exposure, so stock selection beats sector selection.
Watch 1y5y swaption vol: small-cap macro risk is a rate volatility problem.
Download the full PDF analysis
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