3 Small-Cap ETFs to Get Acquainted With
As U.S. stocks continue to grind higher, small-caps are getting in on the act as well.
That much is highlighted by the year-to-date performances of the iShares Russell 2000 Index Fund (NYSE: IWM) an the Vanguard Small-Cap ETF (NYSE: VB). Including Wednesday’s gains, both IWM and VB are now up more than nine percent year-to-date.
IWM and VB are among the larger, more familiar small-cap ETFs and in the case of IWM, that ETF is the most heavily traded among domestic small-caps funds with average daily volume over 34.3 million shares.
The asset-gathering prowess of IWM and VB along with the Schwab U.S. Small-Cap ETF (NYSE: SCHA), the segment’s low-cost leader, gives these funds some advantages over their lesser-known peers. However, investors willing to make more focused small-cap bets can find some ETFs with impressive year-to-date gains that have the potential to keep moving higher.
IndexIQ U.S. Real Estate Small Cap ETF (NYSE: ROOF)
It is not surprising that yield-thirsty investors have embraced real estate investment trusts over the past few years, but the focus has primarily been on those ETFs that offer exposure to large- and mid-cap REITs. The recent performance of the IndexIQ U.S. Real Estate Small Cap ETF indicates small-cap REITs are worth examining as well.
Not only has ROOF jumped more than 12 percent this year, a performance that has easily topped that of IWM and VB, this small-cap REIT offering has offered better than triple the year-to-date returns of the large-cap focused Schwab U.S. Reit ETF (NYSE: SCHH).
While ROOF trades just 25,300 shares per day on average, the ETF rarely trades in excess of 25 cents beyond its net asset value, indicating liquidity is at least decent. ROOF’s underlying index has a dividend yield of almost 6.5 percent, according to IndexIQ data.
PowerShares Fundamental Pure Small Core Portfolio (NYSE: PXSC)
The PowerShares Fundamental Pure Small Core Portfolio certainly qualifies as a small ($15 million in assets under management), unheralded ETF. That does not mean PXSC is not worthy of consideration. Year-to-date, the thinly-traded fund (ADV of 2,300 shares) is up 13.5 percent, indicating that its fundamental weighting methodology can top traditional market cap weighting.
Valuation fans may want to opt for PXSC over IWM. The PowerShares offering has a P/E ratio 18.64 with a price-to-book ratio of 1.76, according to issuer data. IWM’s P/E is almost 26.7 with a price-to-book ratio of almost 3.5, according to iShares data.
PowerShares Fundamental Pure Small Value Portfolio (NYSE: PXSV)
Consider the PowerShares Fundamental Pure Small Value Portfolio the value equivalent of the broader PXSC. With value stocks leading the market higher this year, PXSV is worthy of consideration.
However, PXSV is not heavy so-called value sectors such as consumer staples and utilities. Rather, the $48 million ETF is intimately levered to the rebounding economy as discretionary and industrial names combine for over 41 percent of the fund’s weight. A 23 percent weight to financial services names ensures this is not exactly a “low beta” ETF.
The upside is that the RAFI Fundamental Small Cap Value Index, PXSV’s underlying index, outperformed the S&P SmallCap 600 Index, the Rusell 2000 and the S&p 500 last, according to PowerShares data.
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