Pay Attention to These Small-Cap ETFs

On the heels of a strong move higher that started in mid-November, some of the largest small-cap ETFs have kept the good times going in 2013. For example, the iShares Russell 2000 Index

and the Vanguard Small Cap ETF

are both higher by more than 7.5 percent on a year-to-date basis. Strength in small-caps, an asset class often lauded for being an accurate gauge of risk appetite, has helped fuel a broader rally in U.S. stocks to start the year. That is the good news. The bad news is that if small-caps really are a measuring stick for animal spirits, then there are ample signs a broader market pullback could be imminent. Affirming that theory means looking beyond IWM and VB because, in fairness to those ETFs, both have been solid performers as of late. Both ETFs have gained more than 1.8 percent in the past week alone. However, other small-cap ETFs are telling a different story, one that could be concerning for those that are long stock.

Bad news keeps on

and the small-cap funds have been taking the most savage beatings. One day it is the market admonishing the Indian government's proposed spending spree, the next day it is a major ratings agency reminding investors India could easily lose its investment grade credit rating. None of those factors have been good news for SCIF, which was already in trouble after failing to break through resistance in the $11.50 area earlier this year. Since then, SCIF has tumbled all the way to $9 area. Earlier today, the ETF touched a new 52-week at $8.95. What is ominous about that is not just the fact that $8.95 is a 52-week low, but also the fact that $8.95 is barely more than 20 cents removed from SCIF's all-time low. With the way things look right now for Indian small-caps, even those investors with extremely long-term time horizons can afford to be patient because better pricing appears to be a foregone conclusion with SCIF and related funds.

It is not a stretch to say that traders and investors that actively follow Chinese equities either

on Sunday or have heard something about the report today. The 60 Minutes report combined with last week's slack PMI report out of China are weighing on China ETFs today. Of course, speculation of a property bubble and talk of ghost cities, unoccupied apartment buildings and unused infrastructure have consequences beyond one trading day. And of course, none of this is good news for Chinese banks and real estate firms. HAO, which to its credit has outperformed the iShares FTSE China 25 Index Fund

this year, features an almost 18 percent allocation to the financial services sector. Like IWM and VB, HAO has turned in a decent performance (up 1.5 percent) in the past week, but a drop below support at $24 could mean HAO's next stop is the $21-$22 area.

The PowerShares S&P SmallCap Utilities Portfolio has just $30 million in assets under management and, generally speaking, the regulated utilities that investors prize as defensive plays are large-cap names. In other words, some folks probably would not consider PSCU a "bellwether ETF," although it has the potential to be just that. Unlike the other funds highlighted here, PSCU is neither technically vulnerable nor is it being hampered by macro issues such as government budgets and property bubbles. PSCU has been solid year-to-date with a gain of 6.6 percent and a 30-day SEC yield of almost 3.3 percent could be a source of attraction for some income investors. On that note, PSCU is worth keeping an eye on because a sudden increase in assets will indicate two things. First, it will say investors want to keep some small-cap exposure during a pullback, but favor low-beta sectors over the likes of financials, technology or emerging markets. Second, inflows to PSCU will also indicate investors are willing to pay up for playing defense. With a P/E ratio of 15.33, the Utilities Select Sector SPDR

is trading at the higher end of its historical valuation range. PSCU's P/E is 17.3,

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