When it comes to investing, bigger is not always better.
The large cap stocks are often the names that everyone knows
and loves, however they may not be the best investment option
when the goal is to make money.
Large cap stocks are typically perceived as safer and more
stable than the small cap stocks because they have been
profitable for many years and have steady revenue. On the other
hand, as a company matures they tend to get so big that future
growth expectations will begin to diminish. That is evident in
such companies as Microsoft (NASDAQ:
); they are too big to get out of their own way and the market
becomes saturated with their products unless they are able to
reinvent their business model.
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The small cap stocks are not necessarily startups, but they a
common thread that most have is above average growth. When an
investor buys a stock they are investing in the future earnings
of the company and high growth can lead to above average stock
There are a large number of ETFs that invest in small cap
stocks in a variety of approaches. Investors must make sure to do
their due diligence to find which small cap ETF meets the desired
goals that are attempting to be achieved.
iShares Core S&P Small Cap ETF (NYSE:
The ETF is a highly diversified basket of 602 stocks that
focuses on the S&P Small Cap 600 Index. With the top holding
only making up 0.6 percent of the portfolio and the top ten
holdings only accounting for 5.4 percent of the allocation, the
ETF is truly diversified. The financials, information technology,
and consumer discretionary stocks are the most heavily weighted
Year-to-date the ETF is up 34.3 percent compared to a gain of
25.6 percent for the Vanguard Mega Cap 300 Index ETF (NYSE:
). The annual expense ratio is 0.17 percent and the dividend
yield is 1.1 percent.
iShares Micro Cap ETF (NYSE:
Moving down another notch on the market capitalization ladder
is the micro cap stocks, which are even smaller in size. IWC
takes an extremely diverse approach to the asset class with over
1350 stocks and a top ten that only accounts for 3.2 percent of
the ETF. The financial, health care, and technology sectors are
the three largest sectors represented.
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The performance of IWC is nearly identical to IJR in 2013 with
a gain of 34.2 percent. The expense ratio is higher due to the
exposure to stocks that are not as liquid and the nature of the
asset class. The annual expense ratio is 0.74 percent. The
dividend yield is 0.9 percent.
In most core portfolio allocations, but large cap and small
cap stocks will be represented. However, it is integral not to
over look the growth potential of small cap stocks when investing
for the long-term.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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