On the first trading day of 2013, the iShares Russell 2000 Index
) hit a fresh all-time high and even with a small loss in
Thursday's session, IWM is flirting with $87. IWM, the largest
small-cap ETF by assets with almost $17.7 billion under management,
is up 4.1 percent in the past week, 5.6 percent in the past month
and 15.5 percent in the past year.
Those are all impressive numbers and they come at a cost.
Meaning IWM is
pricey on a valuation basis
compared to select global and small-cap sector
. IWM has a price-to-earnings ratio of 25.22 and a price-to-book
ratio of 3.1,
according to iShares data
Fortunately, IWM's lofty valuations do not permeate the entire
universe of small-cap ETFs. That means investors can tap into the
growth potential of small-caps without the specter of frothy
valuations. Importantly, low market value stocks at reasonable
valuations can be found across the board in terms of U.S. sectors,
developed and emerging markets funds. Consider the following.
IndexIQ Canada Small Cap ETF (NYSE:
) One need not look far away from the U.S. to find small-caps that
are inexpensive. CNDA has a P/E of less than 15 and a price-to-book
ratio of 2.28,
according to IndexIQ data
. However, there is reason CNDA offers attractive valuation
metrics: The fund has slid 10. 5 percent in the past year.
That does not mean CNDA cannot rebound. It can, but it must be
noted that this ETF allocates a combined 73 percent of its weight
to materials and energy stocks. In the case of CNDA's 45.7 percent
weight to materials names, it is gold and silver miners that loom
large and that is likely what has weighed on the ETF. On the other
hand, if precious metals miners rebound, CNDA is one ETF that
investors will want to take note of.
Market Vectors Latin America Small-Cap Index ETF (NYSE:
) Considering this ETF has been around for nearly three years and
that it tracks a region that is popular with investors, it would be
reasonable to expect this fund would have more than $13.8 million
in AUM. It does not and that mead some to think LATM is a "bad"
ETF. The opposite is true and a 10.9 percent gain in the past year
speaks to that fact.
LATM does feature a drawback similar to CNDA in that materials
names account for 27 percent of the fund's weight. And like CNDA,
LATM's exposure to that sector comes via gold and silver miners.
Fortunately, LATM has two important traits that go unnoticed.
First, discretionary and staples combine for over 28 percent of
LATM's weight, giving the ETF some value
as a play on the emerging markets consumer
Second, although Brazil accounts for 35 percent of LATM's
country weight and it is easy to get exposure to Brazilian
small-caps through other ETFs, LATM is one of the best ways to play
Mexican and Chilean small-caps as those two countries combine for
24 percent of the fund's weight. Investors get all that with a
about 15 and a price-to-book ratio around 1.5
PowerShares S&P SmallCap Consumer Staples Portfolio (NASDAQ:
) The PowerShares S&P SmallCap Consumer Staples Portfolio is
one of those ETFs that critics love to hate. It trades less than
4,800 shares per day on average and has just $28.5 million in AUM.
Well, ignorance can be bliss, but that does not mean ignorance is
wise when it comes to ETFs because PSCC is up 14.1 percent in the
Since PSCC debuted in April 2010, the ETF has surged by over 37
percent. Over the same time, IWM is in the red. Over the past year
and since its debut, PSCC has also sharply outperformed its
large-cap equivalent, the Consumer Staples Select Sector SPDR
An important aspect of PSCC is that it is not home to obscure
names. Rather, it is like XLP in that it is also home to familiar
brands. Hain Celestial (NASDAQ:
) and Casey's General Stores (NASDAQ:
) combine for almost 23 percent of PSCC's weight while other
familiar holdings include WD-40 (NASDAQ:
) and Boston Beer (NYSE:
PSCC has a P/E ratio of 18.38 and a price-to-book ratio of 2.19,
according to PowerShares data
For more on ETFs, click
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