On the heels of a strong move higher that started in
mid-November, some of the largest small-cap
have kept the good times going in 2013. For example, the iShares
Russell 2000 Index (NYSE:
) and the Vanguard Small Cap ETF (NYSE:
) are both higher by more than 7.5 percent on a year-to-date
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
Market Vectors India Small-Cap ETF (NYSE:
) Bad news keeps on
mounting for India ETFs
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.
Guggenheim China Small Cap ETF (NYSE:
) It is not a stretch to say that traders and investors that
actively follow Chinese equities either
) 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.
PowerShares S&P SmallCap Utilities Portfolio (NASDAQ:
) 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,
according to PowerShares data
For more on ETFs, click
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