Can This Small-Cap ETF Deliver 100% Gains by 2030?

Calling for a small-cap exchange-traded fund (ETF) to double in five years doesn't sound like an ambitious forecast. However, that prudence is born out of years of tepid performances delivered by smaller stocks, an asset class once known for big gains.

Over the past five years, the Russell 2000 and S&P SmallCap 600 indexes returned about 38% and 44%, respectively, confirming that finding multibaggers among ETFs dedicated to smaller equities has been a difficult task. Same goes for small-cap value funds, which fell out of favor as investors rushed to embrace megacap-growth equities.

This small-cap value ETF could be a multibagger over the next five years. Image source: Getty Images

To its credit, the Avantis U.S. Small Cap Value ETF (NYSEMKT: AVUV) has been a star in this category. It could be poised for even bigger things over the next five years if the macroeconomic environment cooperates and investors look to add some diversification in megacap, growth-heavy portfolios.

This ETF has a strong track record and quality traits

The Avantis ETF, with nearly $19 billion in assets under management (AUM), turned six years old in September and is already the sixth-largest small-cap ETF of any stripe. More impressive than that AUM tally is the fact that this fund sharply outperformed broader small-cap ETFs by a country mile over the past five years, as well as ETFs linked to the value offshoots of the Russell 2000 and the S&P SmallCap 600.

AVUV Total Return Level data by YCharts.

Over those five years, the Avantis ETF flirted with a double, which is impressive when considering investors' enthusiasm for the artificial intelligence (AI) trade, as well as demand for high-quality stocks -- a brush with which small-caps are rarely painted.

However, this small-cap ETF checks some quality boxes. One of its points of emphasis is identifying attractively valued smaller stocks with higher profitability ratios. It can be argued, therefore, that the fund takes steps to avoid value traps. This focus on profitability is one reason why it's outperformed the S&P SmallCap 600 and the value derivative -- indexes with their own profitability and return on equity (ROE) mandates.

That outperformance speaks to the benefits of this ETF being an actively managed fund. There's another perk associated with that trait: Smaller stocks aren't as widely followed by sell-side analysts as are large caps, indicating that the management team behind this fund has been successful at unearthing hidden gems.

Stars may be aligning for this ETF

It's hard to quibble with this ETF's performance over the past five years. Investors looking toward the next half decade hoping for triple-digit returns may find success with this fund because catalysts could be forming to drive 100%-plus gains. For example, some experts believe an earnest rotation into small-cap value will start in the coming quarters.

Second, it's not a stretch to say the U.S. economy has recently been in a malaise. While a recession hasn't set in, jobs growth has been slack and consumer sentiment is in a funk. If those situations reverse for the better and the world's largest economy expands, the Avantis ETF could outperform because history confirms small caps deliver big gains during expansionary periods.

Third, this ETF could be a reversion-to-the-mean play over the next few years because small-cap growth has spent significant time outpacing small-cap value. That's unusual, relative to long-term history. If that situation reverses -- and some experts believe it will -- this ETF could reap the rewards.

Any of those factors could cement the next five-year case for this ETF. All three arriving in unison could make the 100% gains by 2030 forecast appear too conservative.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.