This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETFs That Buy Small-Caps Have Good Timing

Stocks in this article: OIS XOM CVX

NEW YORK ( TheStreet) -- Exchange traded funds have become ever more narrow.

ETFs sliced into sectors offer the chance for better risk-adjusted returns, even as some say niche funds are unnecessary. Industry ETFs enable investors to diversify their portfolios.

PowerShares recently opened a door for people interested in creating more nuanced portfolios with a bevy of small-cap industry ETFs: PowerShares S&P SmallCap Consumer Discretionary Portfolio (XLYS), PowerShares S&P SmallCap Consumer Staples Portfolio (XLPS), PowerShares S&P SmallCap Consumer Staples Portfolio (XLES), PowerShares S&P SmallCap Financials Portfolio (XLFS), PowerShares S&P SmallCap Health Care Portfolio (XLVS), PowerShares S&P SmallCap Industrials Portfolio (XLIS), PowerShares S&P SmallCap Information Technology Portfolio (XLKS), PowerShares S&P SmallCap Materials Portfolio (XLBS) and PowerShares S&P SmallCap Utilities Portfolio (XLUS).

PowerShares' strategy is to essentially copy the concept that SPDR has used in dividing the S&P 500 Index into sector ETFs using every stock. For the small-cap ETFs, PowerShares has broken out the S&P 600 Small Cap Index into nine industry funds. Some exchange traded funds, such as discretionary and technology, have more than 100 holdings, and others as few as 20.

As bull markets begin, small-cap stocks tend to outperform. As the rally matures, blue chips take over. Investors who think the rally that started in March 2009 is a new secular bull market would want to favor small caps over large caps. Those who say the current rally is stuck in a secular bear market would likely lean the other way and perhaps pair a short sale of a small-cap sector ETF with a long position in a large-cap industry fund.

As with any ETF or family of ETFs, it's important to look under the hood to know how the funds are constructed. For example, the Small Cap Financial Portfolio has a much larger weighting in real estate investment trusts, or REITs, than its large-cap cousin -- six of the top 10 stocks, in fact. It wouldn't make sense to buy the Small Cap Financial Portfolio if you're in the camp that says commercial real estate is the next shoe to drop.

The Small Cap Energy Portfolio is one of the quirkier funds in the group. It has only 23 holdings, so some of the names like St. Mary's Exploration (SM), Oil States International (OIS) and Dril-Quip (DRQ) are weighted at over 8% of the fund.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs