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Small-Caps Beat Big Indexes in July: 5 ETF Winners
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The month of July was upbeat for Wall Street as the S&P 500 added about 3%, the Dow Jones gained 3.1% and the Nasdaq advanced 3.8%. However, the small-cap indexes like the Russell 2000 jumped about 4.9% last month while the S&P 600 popped 4.5% (as of Jul 28, 2023).
The key developments included a 25-bps Fed rate hike, the release of better-than-expected U.S. GDP growth data for Q2 along with several other upbeat data points, a good start to a Q2 earnings season with banking giants showing strength and falling inflation. Moreover, regional banks have also been witnessing deposits as they are offering more interest rates. Rising deposits at regional banks are good for small-cap companies’ funding procurement.
As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. Further, they are considered better plays if geopolitical issues or global economic turmoil flex muscles. Currently, geopolitical risks due to war and unrest in various parts of the world and global economic slowdown are major concerns for the stock market performance.
Further, the relative valuation of small-cap stocks supports outperformance versus large-cap stocks. At present, P/E of iShares Russell 2000 ETF (IWM) stands at 10.96X versus 17.86X P/E held by the S&P 500. Against this backdrop, below we highlight a few top-performing small-cap ETFs of the month that can maintain the winning momentum in the near term. These ETFs have a Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold).
ETFs in Focus
First Trust Small Cap Value AlphaDEX ETF (FYT - Free Report) – Up 10.8% Past Month; Rank #2
The underlying NASDAQ AlphaDEX Small Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Value Index. The fund charges 73 bps in fees.
Invesco S&P SmallCap Value With Momentum ETF (XSVM - Free Report) – Up 9.30% Past Month; Rank #2
The underlying S&P 600 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell 2000 Index. The fund charges 36 bps in fees.
Roundhill Acquirers Deep Value ETF (DEEP - Free Report) – Up 9.0% Past Month; Rank #3
The underlying Acquirers Deep Value Index is constructed using an objective, rules-based methodology that begins with an initial universe that mirrors the companies listed on the S&P 500 Index. The fund charges 80 bps in fees.
First Trust Small Cap Core AlphaDEX ETF (FYX - Free Report) – Up 8.6% Past Month; Rank #3
The underlying NASDAQ AlphaDEX Small Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Index. The fund charges 61 bps in fees.
iShares Morningstar Small-Cap Value ETF (ISCV - Free Report) – Up 8.0% Past Month; Rank #2
The underlying Morningstar US Small Cap Broad Value Extended Index comprises of small-capitalization U.S. equities that exhibit value characteristics. The fund charges 6 bps in fees.
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Small-Caps Beat Big Indexes in July: 5 ETF Winners
The month of July was upbeat for Wall Street as the S&P 500 added about 3%, the Dow Jones gained 3.1% and the Nasdaq advanced 3.8%. However, the small-cap indexes like the Russell 2000 jumped about 4.9% last month while the S&P 600 popped 4.5% (as of Jul 28, 2023).
The key developments included a 25-bps Fed rate hike, the release of better-than-expected U.S. GDP growth data for Q2 along with several other upbeat data points, a good start to a Q2 earnings season with banking giants showing strength and falling inflation. Moreover, regional banks have also been witnessing deposits as they are offering more interest rates. Rising deposits at regional banks are good for small-cap companies’ funding procurement.
As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. Further, they are considered better plays if geopolitical issues or global economic turmoil flex muscles. Currently, geopolitical risks due to war and unrest in various parts of the world and global economic slowdown are major concerns for the stock market performance.
Further, the relative valuation of small-cap stocks supports outperformance versus large-cap stocks. At present, P/E of iShares Russell 2000 ETF (IWM) stands at 10.96X versus 17.86X P/E held by the S&P 500. Against this backdrop, below we highlight a few top-performing small-cap ETFs of the month that can maintain the winning momentum in the near term. These ETFs have a Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold).
ETFs in Focus
First Trust Small Cap Value AlphaDEX ETF (FYT - Free Report) – Up 10.8% Past Month; Rank #2
The underlying NASDAQ AlphaDEX Small Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Value Index. The fund charges 73 bps in fees.
Invesco S&P SmallCap Value With Momentum ETF (XSVM - Free Report) – Up 9.30% Past Month; Rank #2
The underlying S&P 600 High Momentum Value Index is composed of securities with strong value characteristics selected from the Russell 2000 Index. The fund charges 36 bps in fees.
Roundhill Acquirers Deep Value ETF (DEEP - Free Report) – Up 9.0% Past Month; Rank #3
The underlying Acquirers Deep Value Index is constructed using an objective, rules-based methodology that begins with an initial universe that mirrors the companies listed on the S&P 500 Index. The fund charges 80 bps in fees.
First Trust Small Cap Core AlphaDEX ETF (FYX - Free Report) – Up 8.6% Past Month; Rank #3
The underlying NASDAQ AlphaDEX Small Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Index. The fund charges 61 bps in fees.
iShares Morningstar Small-Cap Value ETF (ISCV - Free Report) – Up 8.0% Past Month; Rank #2
The underlying Morningstar US Small Cap Broad Value Extended Index comprises of small-capitalization U.S. equities that exhibit value characteristics. The fund charges 6 bps in fees.