Top 10 Small-Cap ETFs

NEW YORK ( ETF Digest) -- The following analysis features our top selections of small-cap ETFs. We'll stick with the "blend" category since they should satisfy most investor needs. We believe these constitute the best index-based offerings individuals and financial advisors may utilize.

These ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth.

Uniquely, investors should remember, small cap issues usually carry higher beta (volatility or higher risk levels) than their large cap peers. This means during times of higher economic growth combined with accommodative Fed monetary policies returns in this sector will outperform larger cap issues. But, the opposite situation does occur should conditions reverse.

Remaining aware of these benefits and risks should be important to every investor.

One thing you'll note with charts posted is the similarities in trends and performance. This isn't a coincidence given overall index constituent similarities.

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

#10: iShares Micro-Cap ETF (IWC)

 

IWC follows the Russell Microcap Index which measures the performance of the microcap sector of the U.S. equity market. The fund was launched in august 2005. The expense ratio is .67%. AUM equal $425 million and average daily trading volume is 74K shares.

As of late January 2012 the annual dividend yield was 1.21% and YTD return was 8.26%. The one year return was -2.97%.

 

Data as of First Quarter 2012

IWC Top Ten Holdings & Weightings
  1. Education Realty Trust, Inc. (EDR): 0.41%
  2. Spectrum Pharmaceuticals Inc (SPPI): 0.38%
  3. Peet's Coffee & Tea, Inc. (PEET): 0.35%
  4. SonoSite, Inc. (SONO): 0.33%
  5. BBCN Bancorp Inc (BBCN): 0.33%
  6. Inhibitex, Inc. (INHX): 0.31%
  7. Liquidity Service, Inc. (LQDT): 0.31%
  8. Pharmacyclics, Inc. (PCYC): 0.30%
  9. LivePerson, Inc. (LPSN): 0.30%
  10. ARMOUR Residential REIT Inc (ARR): 0.29%

 

 

#9: Vanguard Russell 2000 ETF (VTWO)

 

VTWO follows the Russell 2000 Index which measures the performance of the small-cap segment of the U.S. equity universe and is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 10% of the total market capitalization of that Index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The fund was launched in September 2010. The expense ratio is .22%. AUM equal $56 million and average daily trading volume is 16K shares. As of late January 2012 the annual dividend was .92% and YTD return 7.12%. The one year return was 1.30%.

Data as of First Quarter 2012

VTWO Top Ten Holdings & Weightings
  1. CMT Market Liquidity Rate: 2.01%
  2. NetLogic Microsystems, Inc. (NETL): 0.33%
  3. Home Properties, Inc. (HME): 0.27%
  4. National Retail Properties Inc (NNN): 0.26%
  5. American Campus Communities, Inc. (ACC): 0.25%
  6. Nicor Inc (GAS): 0.25%
  7. Henry Jack & Associates, Inc. (JKHY): 0.25%
  8. MFA Financial, Inc. (MFA): 0.25%
  9. Healthspring, Inc. (HS): 0.25%
  10. Clean Harbors, Inc. (CLH): 0.24%

 

#8: SPDR S&P 600 Small-Cap ETF (SLY)

 

SLY follow the S&P Small Cap Index which measures the performance of the small capitalization sector of the U.S. equity market. The fund was launched in August 2005. The expense ratio is .20%. AUM equal $77 million and average daily trading volume is less than 10K shares.

As of late January 2012 the annual yield was 1.02% and YTD return 6.33%. The one year return was 5.97%.

Data as of First Quarter 2012

SLY Top Ten Holdings & Weightings
  1. Healthspring, Inc. (HS): 0.80%
  2. Salix Pharmaceuticals, Ltd. (SLXP): 0.62%
  3. BioMed Realty Trust Inc (BMR): 0.61%
  4. Questcor Pharmaceuticals, Inc. (QCOR): 0.57%
  5. Tanger Factory Outlet Centers (SKT): 0.56%
  6. Piedmont Natural Gas Company (PNY): 0.54%
  7. Proassurance Corporation (PRA): 0.53%
  8. Cubist Pharmaceuticals, Inc. (CBST): 0.53%
  9. Delphi Financial Group (DFG): 0.53%
  10. Mid-America Apartment Communities (MAA): 0.51%

 

#7: Revenue Shares Small Cap ETF (RWJ)

 

RWJ follows the Revenue Shares Small Cap Index which is comprised of the same securities as the S&P Small Cap 600 but weights the stocks according to top line revenue instead of market capitalization. The fund was launched in February 2008.

The expense ratio is .54%. AUM equal $112 million and average daily trading volume is 20K shares. As of late January 2012 the annual dividend was .37% and YTD return was 8.48%. The one year return was 6.04%.

Data as of First Quarter 2012

RWJ Top Ten Holdings & Weightings
  1. World Fuel Services Corporation (INT): 3.79%
  2. Synnex Corporation (SNX): 1.75%
  3. Sonic Automotive Inc (SAH): 1.53%
  4. Group I Automotive Inc (GPI): 1.27%
  5. EMCOR Group, Inc. (EME): 1.18%
  6. OfficeMax Inc (OMX): 1.18%
  7. Anixter International Inc (AXE): 1.06%
  8. Kelly Services, Inc. A (KELYA): 1.04%
  9. United Stationers Inc. (USTR): 1.01%
  10. Molina Healthcare, Inc. (MOH): 0.98%

#6: First Trust Small Cap Core AlphaDEX ETF (FYX )

 

FYX follows the Defined Small Cap Core Index which is an "enhanced" index created and administered by Standard & Poor's which employs the AlphaDEX stock selection methodology to select stocks from the S&P Small-Cap 600 Index.

The fund was launched in May 2007. The expense ratio is .70%. AUM equal $138 million and average daily trading volume is 50K shares. As of late January 2012 the annual dividend yield was .20% and YTD return 7.56%. The one year return was 5.85%.

Data as of First Quarter 2012

FYX Top Ten Holdings & Weightings
  1. Multimedia Games Holding Co Inc (MGAM): 0.59%
  2. Stone Energy Corporation (SGY): 0.56%
  3. Questcor Pharmaceuticals, Inc. (QCOR): 0.53%
  4. Big 5 Sporting Goods Corporation (BGFV): 0.48%
  5. Healthspring, Inc. (HS): 0.48%
  6. Tessera Technologies, Inc. (TSRA): 0.46%
  7. Molina Healthcare, Inc. (MOH): 0.45%
  8. Olympic Steel (ZEUS): 0.45%
  9. Petroleum Development Corporation (PETD): 0.44%
  10. Sonic Automotive Inc (SAH): 0.44%

#5: iShares Morningstar Small Core ETF (JKJ)

 

JKJ follows the Morningstar Small Core Index which measures the performance of small cap stocks that have exhibited average growth and value characteristics. The fund was launched in June 2004. The expense ratio is .25%. AUM equal $141 million and average daily trading volume is less than 7K shares. (Use "limit orders" here especially.)

As of late January 2012 the annual dividend yield was 1.01% and YTD return was 6.72%. The one year return was -.43%.

Data as of First Quarter 2012

JKJ Top Ten Holdings & Weightings
  1. Home Properties, Inc. (HME): 0.86%
  2. Clarcor Inc. (CLC): 0.78%
  3. Tanger Factory Outlet Centers (SKT): 0.78%
  4. Service Corporation International, Inc. (SCI): 0.75%
  5. Treehouse Foods, Inc. (THS): 0.72%
  6. Key Energy Services, Inc. (KEG): 0.72%
  7. CBOE Holdings, Inc. (CBOE): 0.72%
  8. Proassurance Corporation (PRA): 0.72%
  9. Mid-America Apartment Communities (MAA): 0.72%
  10. Wesco International, Inc. (WCC): 0.70%

 

#4: Schwab Small-Cap ETF (SCHA)

SCHA follows the Dow Jones U.S. Small Cap Total Stock Market Total Return Index which (aside from a mouthful) is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the stocks ranked 751-2,500 by full market capitalization and is float-adjusted market cap weighted. The fund was launched in November 2009. The expense ratio is .13%. (The ETF is commission-free for Schwab clients.)

AUM equal $567 million and average daily trading volume is 183K shares. As of late January 2012 the annual dividend yield was 1.23% and YTD return was 7.16%. The one year return was 2.08%.

Data as of First Quarter 2012

SCHA Top Ten Holdings & Weightings
  1. Panera Bread Company, Inc. A (PNRA): 0.28%
  2. Rock-Tenn (RKT): 0.27%
  3. Oil States International, Inc. (OIS): 0.27%
  4. Biomarin Pharmaceutical, Inc. (BMRN): 0.26%
  5. Signet Jewelers Ltd. (SIG): 0.26%
  6. Arthur J. Gallagher & Co. (AJG): 0.25%
  7. Micros Systems, Inc. (MCRS): 0.25%
  8. Dresser-Rand Group, Inc. (DRC): 0.25%
  9. BE Aerospace Inc (BEAV): 0.25%
  10. Healthspring, Inc. (HS): 0.25%

 

#3: Vanguard Small-Cap ETF (VB)

VB follows the MSCI US Small Cap 1750 Index which consists of 1750 small cap stocks in U.S. markets. The fund was launched in January 2004. The expense ratio is .15%. AUM equal $4 billion and average daily trading volume exceeds 325K shares. As of late January 2012 the annual dividend yield was 1.36% and YTD return 7.10%.

The one year return was 2.23%. As of the third quarter end in 2011 the YTD return was -8.89% demonstrating high volatility.

Data as of First Quarter 2012

VB Top Ten Holdings & Weightings
  1. CMT Market Liquidity Rate: 0.67%
  2. Pharmasset, Inc. (VRUS): 0.45%
  3. Varian Semiconductor Equipment Associates, Inc. (VSEA): 0.34%
  4. ITC Holdings Corp (ITC): 0.29%
  5. Essex Property Trust (ESS): 0.29%
  6. TransDigm Group Inc (TDG): 0.29%
  7. Camden Property Trust (CPT): 0.29%
  8. Cooper Companies (COO): 0.27%
  9. Waste Connections, Inc. (WCN): 0.27%
  10. Deckers Outdoor Corporation (DECK): 0.27%

 

#2: iShares S&P 600 SmallCap 600 ETF (IJR)

IJR the S&P SmallCap 600 Index was launched in May 2000. The expense ratio is .20%. AUM equal nearly $7.3 billion and average daily trading volume is around 1.9M shares.

As of late January 2012 the annual dividend yield was 1.02% and YTD return was 6.81%. The one year return was 6.42%. Through the third quarter of 2011 the fund was down -9.06%.

Data as of First Quarter 2012

IJR Top Ten Holdings & Weightings
  1. Healthspring, Inc. (HS): 0.80%
  2. Salix Pharmaceuticals, Ltd. (SLXP): 0.62%
  3. BioMed Realty Trust Inc (BMR): 0.61%
  4. Questcor Pharmaceuticals, Inc. (QCOR): 0.57%
  5. Tanger Factory Outlet Centers (SKT): 0.56%
  6. Piedmont Natural Gas Company (PNY): 0.54%
  7. Cubist Pharmaceuticals, Inc. (CBST): 0.53%
  8. Proassurance Corporation (PRA): 0.53%
  9. Delphi Financial Group (DFG): 0.53%
  10. Mid-America Apartment Communities (MAA): 0.52%

 

#1: iShares Russell 2000 ETF (IWM)

IWM tracks the Russell 2000 index which consists of the smallest 2000 stocks in the Russell 3000 index. The fund was launched in May 2000. The expense ratio is .26%. AUM equal $16 billion and average daily trading volume 50M shares. As of late January 2012 the annual dividend yield was 1.39% and YTD return 7.30%. The one year return was 1.47%. It is worth mentioning that through the third quarter of 2011 the YTD return was -11.62%.

Data as of First Quarter 2012

IWM Top Ten Holdings & Weightings
  1. Healthspring, Inc. (HS): 0.33%
  2. NetLogic Microsystems, Inc. (NETL): 0.31%
  3. SuccessFactors, Inc. (SFSF): 0.30%
  4. Clean Harbors, Inc. (CLH): 0.27%
  5. World Fuel Services Corporation (INT): 0.27%
  6. Henry Jack & Associates, Inc. (JKHY): 0.26%
  7. American Campus Communities, Inc. (ACC): 0.26%
  8. Salix Pharmaceuticals, Ltd. (SLXP): 0.25%
  9. Onyx Pharmaceuticals, Inc. (ONXX): 0.25%
  10. BioMed Realty Trust Inc (BMR): 0.25%

As noted in the introduction and within many charts the Small Cap sector has the highest beta of the larger indexes. This means more volatility overall and better returns theoretically as overall stock markets rise. On the other hand, it can also mean underperformance as markets fall. This is why we believe it's important to incorporate long-term technical indicators like DeMark to prevent large drawdowns like we've seen over the last decade especially.

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Scottrade's Focus Shares as other brokerage firms try issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

You may address any feedback to: feedback@etfdigest.com   

The ETF Digest has no current positions in the featured ETFs.

 

(Source for data is from ETF sponsors and various ETF data providers)

 
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.