Market Overview

3 Small-Cap ETFs With Better Performance Than IWM

3 Small-Cap ETFs With Better Performance Than IWM

In the ETF world, investing in small-cap stocks has become almost synonymous with the iShares Russell 2000 ETF (NYSE: IWM).

It is the benchmark du jour for companies with market capitalizations of less than $2 billion and is the most widely traded of its peers on a daily basis. Since debuting in May of 2000, IWM has amassed nearly $25 billion in total assets and currently charges an expense ratio of 0.24 percent.

With the recent underperformance of IWM versus large cap indexes, such as the SPDR S&P 500 ETF (NYSE: SPY), it is worth looking at alternative small cap ETFs that may be holding up better as of late.

One fund that has had significantly better total returns in 2014 is the Vanguard Small Cap ETF (NYSE: VB). This fund takes a slightly different tact by investing in a more concentrated subset of 1,560 stocks that heavily favors the financial and industrial sectors. This ETF also charges a very minimal expense ratio of just 0.09 percent.  

Related: Guru ETFs Reveal Hedge Fund Strategies

Year-to-date, VB has given back only 0.97 percent, while IWM has lost 4.85 percent.

The WisdomTree Small Cap Dividend Fund (NYSE: DES) is another ETF that has been able to hold up much better than many of its peers. So far this year, DES has only lost 1.48 percent and has had much narrower price swings than IWM.

This ETF is based on a fundamentally weighted index that screens and weights its constituents according to their aggregate cash dividend payments. The end result is a unique domestic small-cap fund with 690 underlying holdings that pays a monthly dividend to shareholders.

The last fund that deserves mention in this category is the iShares Morningstar Small-Cap Value ETF (NYSE: JKL). This ETF takes an even more concentrated approach to its index construction by selecting 240 stocks that are considered to be undervalued relative to comparable companies.

So far this year, JKL has been able to maintain positive momentum and is currently sitting on a gain of 1.10 percent. This divergence is likely attributable to the shift in sentiment from growth to value stocks that fits perfectly with the underlying stocks in JKL.

Each of these funds may be worthy competitors for a portion of your small-cap exposure as a tactical opportunity due to their unique nature.

Posted-In: Broad U.S. Equity ETFs ETFs Best of Benzinga


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