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5 Small-Cap Sector ETFs Beating the Russell 2000

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Wall Street has been enjoying a series of record highs lately with small-cap stocks leading the way higher. This is especially true as the Russell 2000 Index is up 24.5% over the past three months, outperforming the gains of 18.1% for the S&P 400 Mid Cap Index and 7.8% for the S&P 500 Index.

Most of the gains were driven by the COVID-19 vaccine optimism with America now starting to roll out vaccination to millions of Americans developed by Pfizer (PFE - Free Report) in collaboration with a German biotechnology company, BioNTech (BNTX - Free Report) . The vaccine may end the pandemic and lead to swift economic recovery. Small-cap companies are closely tied to the U.S. economy and are thus poised to outperform when the economy improves.

Additionally, the super-easy monetary policy has been driving the small-cap rally. Fed Chairman Jerome Powell pledged to keep rates at lower levels until the end of 2023. A low interest rate bodes well for small-cap stocks as it pushes up economic activities and results in higher spending, thus boosting domestically focused companies (read: Small Cap ETFs Deliver Big Gains for Investors).

Looking at historical performances, December typically yields the second-best monthly performance, according to Sam Stovall, chief investment strategist at CFRA Research in New York. The Russell 2000 averages a 2.15% return in December, climbing 76% of the time for the highest frequency of advance compared to an average gain of 1.47% for the S&P 500 and a 73% frequency of advance. Moreover, the “January Effect,” which is a seasonal increase in stock prices largely due to year-end tax considerations, has been fueling a rally in the small-cap space.

Given this, there have been winners in several corners of the small-cap space. Below we have presented five ETFs that have easily crushed the Russell 2000 Index over the past three months and are likely to continue their strong performance heading into the New Year.

Amplify Seymour Cannabis ETF (CNBS - Free Report) – Up 43.7%

With AUM of $20 million, CNBS is actively managed and invests 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. The fund holds 24 securities and charges 75 bps in annual fees. It trades in an average daily volume of 44,000 shares (read: Cannabis ETFs Set to Soar in 2021 on More U.S. Legalization).

Invesco S&P SmallCap Energy ETF (PSCE - Free Report) – Up 42.1%

This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 34 stocks in its basket with AUM of $21.4 million. The fund trades in an average daily volume of 111,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

Invesco S&P SmallCap Information Technology ETF (PSCT - Free Report) – Up 36.7%

This fund offers exposure to the companies engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies by tracking the S&P SmallCap 600 Capped Information Technology Index. Holding 74 securities in its basket, the product has AUM of $284.3 million and trades in light average daily volume of about 8,000 shares. The ETF charges 29 bps in fees per year from its investors and has a Zacks ETF Rank #3 with a High risk outlook.

Invesco S&P SmallCap Materials ETF (PSCM - Free Report) – Up 32.7%

This fund offers exposure to companies that are principally engaged in producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals. It follows the S&P SmallCap 600 Capped Materials Index, holding 37 securities in its basket. From an industrial look, chemicals takes the largest share at 50.4% followed by metals & mining (35.1%), and paper & forest products (12%). The fund has AUM of $8.9 million and trades in volume of 1,000 shares a day on average. It charges 29 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

ALPS Medical Breakthroughs ETF (SBIO - Free Report) – Up 29.9%

This fund provides exposure to companies with one or more drugs in phase II or phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index. It holds 91 securities in its basket. The product charges 50 basis points in fees per year from its investors and trades in a moderate average daily volume of about 47,000 shares. It has AUM of $242.5 million in its asset base and carries a Zacks ETF Rank #3 with a High risk outlook (read: Biotech ETF Hits a New 52-Week High).

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