If investors believe that small-cap stocks and the
are accurate gauges of risk appetite then they might not like
what some major small-cap ETFs have been saying in recent
Despite modest declines on Wednesday, the S&P 500, Dow
Jones Industrial Average and the Nasdaq Composite are still in
the green over the past five days. The same cannot be said of
myriad small-cap ETFs, including two of the group's marquee
Factoring in Wednesday's losses, the iShares Russell 2000
Index Fund (NYSE:
) and the Vanguard Small-Cap ETF (NYSE:
) are each off about 0.25 percent in the past five days. IWM has
been turned back at the psychologically important $90 level while
VB looks like it is
in danger of falling below $85
In the case of VB, a fund where high-beta sectors such as
financial services and technology combine for 40 percent of the
ETF's weight, a drop below $84.20 could send the ETF back to the
$81 area to fill in a gap up that was made early this year.
IWM's chart is nearly identical. Regarding this ETF, a move
below $88 probably takes it back to $85 to fill in an upward gap
made earlier this year. Financial services and technology names
combine for almost 37 percent of IWM's sector weight.
Interestingly, the phenomenon of small-cap vulnerability is
not confined to U.S.-focused ETFs. Factor in a small loss
Wednesday and the SPDR S&P Emerging Markets Small Cap (NYSE:
) is also off 0.25 percent in the past week. That could be a sign
of things to come with Taiwanese and Chinese small-caps as those
countries combine for over 45 percent of EWX's weight.
A small loss on Wednesday means the WisdomTree Emerging
Markets SmallCap Dividend Fund (NYSE:
) is down over the past week. In addition to an almost 23 percent
allocation to Taiwan, DGS is also struggling because South Korean
and Malaysia small-caps combine for 19 percent of the ETF's
weight. South Korea and Malaysia are the only major Asian markets
that are in the red in 2013.
While the ETF is up in the past week, one of the worst
year-to-date small-cap offenders, international or otherwise, is
the Market Vectors India Small-Cap ETF (NYSE:
). That fund has plunged 5.5 percent since the start of the
Emerging markets small-cap ETFs, as is the case with their
U.S. counterparts, are often heavy on financial services names
and other high-beta sectors such as consumer discretionary and
One day might not make a trend. Perhaps five days does not,
either, but it is clear some small-cap ETFs are showing signs of
a looming pullback. The adventure among us can profit/hedge with
short-term positions in the ProShares UltraPro Short Russell2000
) or the Direxion Daily Small Cap Bear 3X Shares (NYSE:
). Both products are designed to deliver three times the daily
inverse performance of the Russell 2000 Index.
For more on ETFs, click
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