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ETF News And Commentary

When the broad stock market is finding it hard to secure outsized gains on issues like global growth worries, volatility in oil prices and a seasonal U.S. economic slowdown in Q1, small-cap stocks have breezed past their large counterparts. 

The S&P 500 and the Dow Jones offered almost flat and negative returns, respectively, in the last one month, but the Russell 2000 index added about 2.7% (read: Will the Lure of Dividends Lead Small Cap ETFs Higher?). 

As soon as the U.S. economy logged a turnaround in Q2 by providing better-than-expected job growth data along with strong manufacturing, construction spending, automobile sales and housing numbers, the speculations for a September lift-off for the Fed rate policy intensified.

This, in turn, added strength to the value of the greenback making exports pricier, thereby hurting earnings of the large-cap American firms with considerable foreign exposure.
Moreover, the confidence in the international economy is yet to gain the ground. The World Bank recently reduced its estimate for global growth this year to 2.8% from 3% predicted in January. 

To add to this, the nagging Greek debt deal story was enough to wobble global investors. All these global threats will naturally weigh on large-cap stocks and the related ETFs.

Small Caps Outperformance

On the other hand, small-cap ETFs saw a monetary setback in April after the Fed lowered the U.S. economic growth projection for 2015 slightly in March. Investors should note that small-cap stocks are seen as the indicator of the domestic economy.

These pint-sized companies deal mainly with the domestic economy. Due to their less global exposure, these stocks remain relatively less ruffled by a strong dollar. So this part of capitalization would be one of the best bets if the Fed goes for a rate hike in September.

Though the Fed policy tightening might cause some disruption in market activities, the central bank has noted that the hike in rates would be slower. And a slower increase (when the step is actually taken) could be the key to small-cap success (read: Can These Top-Ranked Small Cap Growth ETFs Win in 2015?).

Though the IMF cut the 2015 growth projection for the American economy to 3.1% in April from 3.6% (projected in January), the organization described this market as ‘robust’. This clearly explains why the small-cap ETFs are lately leading the U.S. market rally.

Below, we have highlighted three small-cap growth ETFs that are easily beating the overall market amid the ongoing Fed and Greece-induced volatility (see: all the Small Caps ETFs here).

iShares Russell 2000 Growth ETF (IWO)

This is one of the popular and liquid ETFs in the small cap space with AUM of $7.14 billion and average trading volume of close to 1 million shares a day. The 1,196-stock fund tracks the Russell 2000 Growth Index. It is well spread out across components as none of these holds more than 1.22% of assets.

Sector wise, information technology, and health care take the top two spots with one-fourth share each. The fund charges 25 bps in annual fees from investors and has gained over 9% so far this year and added  about 3.54% in the last four weeks (as of June 10, 2015).

iShares S&P Small-Cap 600 Growth ETF (IJT)

This $3.39 billion-fund follows the S&P SmallCap 600/Citigroup Growth Index and provides a diversified exposure to a broad basket of 350 stocks. None of the stocks holds more than 1.24% of assets. In terms of sectors, financials take the top spot with over one-fifth of the total. The product trades at a moderate volume of over 150,000 shares a day and charges 25 bps in fees.

The ETF is up 8% so far in the year and added about 3.14% in the last four weeks (as of June10, 2015).

SPDR S&P 600 Small Cap Growth ETF (SLYG)

The ETF tracks the S&P SmallCap 600 Growth Index. Holding 351 securities, this fund is also well spread out across each sector and security. Each security accounts for less than 1.25% while sector wise, financials, consumer discretionary and information technology take the top three spots with roughly one-fifth share, leaving a decent allocation for the health care and industrials sectors.

This $547.6 million-fund trades at paltry volumes of 20,000 shares a day suggesting additional cost beyond the expense ratio of 0.15%. The ETF is up 7.9% year to date and advanced about 3.12% in the last four weeks.

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