Exchange-traded funds have had a good run in an unprecedented year for global markets.
Inflows reached a monthly record of $91 billion in November as investors piled into popular market-tracking funds such as the SPDR S&P 500 ETF (SPY) and the Vanguard Total Stock Market ETF (VTI) as well as the narrower Financials Select Sector SPDR Fund (XLF) and the iShares Core S&P Small-Cap ETF (IJR), according to ETF.com.
The small-cap-based Russell 2000 index hit an all-time high in November and notched its best month on record.
"It's probably time to think about small caps in your asset allocation," Will McGough, chief investment officer at Stadion Money Management, a retirement managed account advisor, told CNBC's "ETF Edge" on Wednesday.
After years of underperformance, the "tide is turning" for small caps thanks to therapeutic companies driving gains in the health-care-heavy group, McGough said.
"Small-cap companies represent the heart of the American economy — Main Street, so to say — and if you think things are going to get better and have optimism going forward, small caps are your play," he said.
Stock pickers are the group to watch in this market, Andrew McOrmond, managing director of ETF trading solutions at WallachBeth Capital, said in the same "ETF Edge" interview.
"We're in the biggest stock picker's market that I've seen in 10 years," McOrmond said.
Because stock pickers tend to invest based on themes, that means "thematic ETFs are going to grow," he said.
Some already are. During the coronavirus pandemic, assets in the U.S. Global Jets ETF (JETS), which tracks airline stocks, have grown from $34 million to $2.7 billion, and its outstanding shares have climbed from 2 million to 120 million.
"JETS, for the airlines ... reduces the single-stock risk, and airlines have room to grow, right?" McOrmond said. "The original stocks in this move were the techs and the stay-at-home [names]. You're looking to gain some alpha. Airlines still have a considerable amount to go."
Airlines are also less likely than cruise lines to delay restarting business at full steam, McOrmond said.
"Once this vaccine comes out, people are going to travel, and I think Delta, United, those major carriers, can make up that gap that they've experienced and get back to where the other stocks have gone. I think that's 10-20% for some of these companies, maybe even more," he said.
The JETS ETF climbed nearly 4% on Thursday. The iShares Russell 2000 ETF (IWM) ended trading up less than 1%.