In the last month alone, exchange traded fund (
ETF
) providers have dished out more than a dozen small-cap funds in
hopes that the historical tendency of small-caps to outperform in
recoveries will continue to repeat itself.
For the last six months, small-caps have gained about 18%,
leaving large-caps, which have gained about 10%, in the dust. It's
certainly easy to see the appeal of small-caps on the part of both
providers and investors, and now there are more ways to play these
stocks than ever before.
In the past month, fund providers
PowerShares
,
Van Eck
and
IndexIQ
have issued more than a dozen small-cap ETFs, and many of the new
small-cap ETFs are focused on specific industries, allowing
investors to pick and choose the most attractive areas of the
markets,
writes Cinthia Murphy for IndexUniverse
. [
Hot New ETF Trend: International Small-Caps
]
Many believe the saying that small-caps lead the way out of a
recession, and as of March 31, assets under U.S. small-cap ETFs had
grown 87% year-over-year, compared to large-cap ETFs' growth of 43%
in the same period. The investors' choice in small-cap ETFs have
also eliminated single-company risk since the funds hold multiple
stocks from a benchmark index.
Invesco PowerShares Managing Director and Global Head of ETFs
Ben Fulton told us recently that PowerShares found that not only is
outperformance typically seen in the first year of a recovery, but
it tends to go on for at least another 36 months. "If past
recessions and recoveries are any indication, we believe there's a
couple years left in comparison to large-caps," says Fulton.
Sam Stovall, chief investment officer at Standard & Poor's,
believes small-cap companies will lead the economic recovery
because they will spur new growth through job creation and mergers
and acquisitions. U.S. small-cap ETFs have been performing exactly
as expected, with double-digit gains last year and year-to-date
returns of between 15% and 20%.
-
iShares Russell 2000 Index Fund (NYSEArca:
IWM
)
-
iShares S&P SmallCap 600 (NYSEArca:
IJR
)
-
Vanguard Small-Cap ETF (NYSEArca:
VB
)
Adam Patti, president of IndexIQ, adds that Asian small-cap
stocks are particularly attractive because the region wasn't hit as
hard by the crisis. Additionally, countries in that part of the
world feed Chinese demand and could see "growth rates above
historical norms." IndexIQ is in the process of launching 13
country-specific small-cap ETFs targeting Asian economies and some
commodities ETFs. So far, IndexIQ has rolled out three of its 13
planned small-cap funds. [
IndexIQ Launches Two New Small-Cap ETFs.
]
-
IQ Australia Small Cap ETF (NYSEArca:
KROO
)
-
IQ Canada Small Cap ETF (NYSEArca:
CNDA
)
-
IQ South Korea Small Cap ETF (NYSEArca:
SKOR
)
PowerShares launched nine U.S. small-cap sector ETFs this month
that focuses on energy, utilities, materials, consumer
discretionary, consumer staples, industrials, health care,
information technology and financials. [
PowerShares Launches 9 New Small-Cap Sector
ETFs.
]
Van Eck currently has two small-cap emerging market ETFs under
its wing:
Market Vectors Latin America Small Cap Index ETF (NYSEArca:
LATM
)
and
Market Vectors Brazil Small-Cap ETF (NYSEArca:
BRF
)
. [
Market Vectors Brings Small-Cap Latin America ETF
to Market.
]
For more information on small-caps, visit our
small-cap category
.
Max Chen contributed to this article.