The fourth quarter earnings season has been fairly upbeat
given the fact that a majority of companies that have reported so
far have beaten expectations on both the bottom and top
While it is too early to say if this will carry the market
past earnings season, one thing is for sure; it has been a solid
start to 2013. Markets are once again approaching all-time highs
and many believe that stocks are very capable of keeping this
trend intact going forward (read
5 Sector ETFs Surging to Start 2013
Yet, this trend hasn't been limited to large caps by any
means, as it has permeated other corners of the market as well.
Small and mid caps have broadly reached or surpassed their
all-time highs, crushing large caps in the process.
This is important, as is mostly the case in momentum based
market surges (such as the present one) and falls, the mid and
small capitalization companies often play a very important role
in determining the strength and extent of the up or down
In fact the strength or weakness in the mid and small cap
stocks in any given market trend signifies whether the market
breadth is supporting the trend or not. Mostly the 'trends' are
short lived if the market breadth does not support it.
However, the present up trend is surely supported by the
market breadth which has resulted in this being one of the
stronger up trends in recent times.
And judging by the recent developments on the macroeconomic as
well as earnings front, this strength in the uptrend is most
likely to continue going forward. In this regard we have
, one from each market capitalization bucket, and which is right
in the middle of the market surge and has benefited the most from
Large Cap ETF
Large caps have led the news reports lately as the S&P 500
is now at a multi-year high and within striking distance of its
all-time high of 1,565. After starting the year with a bang, the
benchmark index has been able to sustain these levels (see
3 Ways to Play the S&P 500 Rally with
Even more encouraging is the fact that the index has been able
to make even higher highs from there onwards. The following ETF
is a cost effective, liquid option to capitalize on the large cap
Vanguard S&P 500 ETF (
Launched in the latter half of the year 2010, the ETF has been
able to amass more that $7 billion since its inception. Probably
one reason why investors have shown interest towards this product
is its low expense ratio of just 5 basis points.
The ETF has been able to deliver total returns of 16% for the
one year period as of 23
The S&P 500 tracking ETF is upbeat on Technology,
Financials and Healthcare with companies like Apple Inc, Exxon
Mobil Corp, General Electric and Chevron occupying top spots.
Mid Cap ETF
Mid caps have put up a strong show throughout the uptrend
after exhibiting a forgettable performance in fiscal 2011.
Although mid caps have been more volatile, their gains have also
superseded their large cap counterparts.
On average, mid caps have fetched total returns of around
23.5% (as measures by the S&P Mid cap 400 Index) since the
rally began. At the same time, the S&P 500 has returned
And if the trend continues the mid caps are poised for yet
another fantastic year ahead. The following ETF is a cost
effective and liquid choice for investors.
Vanguard Mid-Cap ETF (
VO tracks the MSCI US Mid Cap 450 Index which measures the
performance of 450 stocks from the mid cap space. The low cost
ETF charges just 10 basis points in fees and expense paying out
1.41% in yields.
The ETF holds a fairly diversified portfolio of 450 stocks
allocating just 5% of its total assets in the top 10 holdings. VO
allocates a majority of its assets in the Consumer Discretionary,
Financials and Information Technology sectors (read
Two Sector ETFs to Buy in 2013
It has a net asset base of around $4.26 billion. The ETF has
been able to deliver total returns of around 16% for the one year
period as of 23
Small Cap ETF
Things have been pretty much similar in this space as well.
The Russell 2000 Index has returned around 22% during this
present rally. In fact, the surge in the Russell 2000 index is a
classic representation of the 'legs' of this present rally since
the index represents around 2/3
of the total U.S equity market breadth. And such substantial
increase in an Index like this over a decent period of time
surely does exhibit a very encouraging picture.
The following ETF can best capture the essence of this
iShares Russell 2000 ETF (
IWM tracks the Russell 2000 Index which is the best
representative index of the small cap space in the U.S. equity
markets. Like most products from iShares, the ETF would seem a
bit on the pricier side with an expense ratio of 0.25%. However,
with an asset base of more than $18 billion, IWM is one of the
largest ETFs from the small cap space (see
Is the Vietnam ETF Back on Track?
The ETF has returned 16.25% for the one year period as of 23
January 2013. IWM allocates just 2.72% of its total assets in the
top 10 holdings with maximum allocations to the Financial and
Consumer Discretionary sector.
What Lies Ahead?
With the markets already hovering around all time highs, many
would believe that it is the time for the bears to wake up again.
This is not entirely wrong as some amount of profit booking is
inevitable at current levels which would trigger a minor
However, the odds are definitely against a full-fledged market
fall. This is indicated by the comparative returns chart of the
ETFs along with the S&P 500 (read
Play a Resurgent Japan with These Three ETFs
Despite jumpstarting the year with a pretty wide margin, all
these ETFs have been able to sustain these levels and even surge
from there onwards. While this uptrend is clearly a sign of
strength brewing, the broader economic developments will act as a
catalyst for higher highs going forward.
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ISHARES TR-2000 (IWM): ETF Research Reports
VIPERS-MID CAP (VO): ETF Research Reports
VANGD-SP5 ETF (VOO): ETF Research Reports
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