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Small-Cap ETFs to Bet on Amid Dovish Fed, Mideast Conflict
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Wall Street has shown significant gains to start this week on growing optimism that Fed rate increases might be over. However, escalating tensions in the Middle East continued to remain an overhang. Against such a backdrop, small-cap ETFs seem a prudent choice.
While there are many options available in this space to tap the strong trend, investors should consider ETFs having a Zacks Rank #1 (Strong Buy). iShares Core S&P Small-Cap ETF (IJR - Free Report) , Vanguard Small-Cap ETF (VB - Free Report) , Schwab U.S. Small-Cap ETF (SCHA - Free Report) , Vanguard Russell 2000 ETF (VTWO - Free Report) and SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report) could be solid plays.
Why Small-Caps?
The bouts of latest data suggest the economy is on a strong foothold. The International Monetary Fund raised the U.S. growth forecast by 0.3 percentage points to 2.1% for this year and by 0.5 percentage points to 1.5% for the next. As small-cap companies are more domestically tied, these are poised to outperform when the economy improves (read: 3 Sector ETFs & Stocks to Bet on Upbeat September Jobs Data).
The dovish comments from two Fed officials signaled that the recent surge in bond yields could lead to the tightening in credit conditions that the central bank is looking for. This could pave the way for policymakers to call an end to raising rates in this cycle, according to some analysts. Atlanta Fed President Raphael Bostic said that the U.S. central bank does not need to raise interest rates any further, and that he sees no recession ahead. This has pushed Treasury yields lower, leading to risk-on trade. According to CME's FedWatch tool, traders put the chance of interest rates remaining unchanged in November and December at 87% and around 71%, respectively.
Further, small-cap stocks are considered safer and better plays if political issues or economic turmoil creep into the picture as the pint-sized stocks generate most of their revenues from the domestic market. A surprise severe attack on Israel by Palestinian militants, Hamas, last weekend has deepened political uncertainty across the Middle East, thereby driving the appeal for small-cap stocks. Israeli Prime Minister Benjamin Netanyahu warned of an impending "long and difficult war.” The attack marked the deadliest offensive in 50 years (read: Defense ETFs Spike on Middle East Tensions).
iShares Core S&P Small-Cap ETF offers exposure to U.S. small-cap stocks and follows the S&P SmallCap 600 Index. iShares Core S&P Small-Cap ETF holds 646 stocks in its basket, with none accounting for more than 0.7% of assets. Financials, industrials, consumer discretionary, and information technology are the top four sectors with double-digit exposure each.
iShares Core S&P Small-Cap ETF is the largest and most popular ETF in the small-cap space, with AUM of $64.7 billion and an average daily volume of 3.5 million shares. The product charges investors 6 bps in annual fees.
Vanguard Small-Cap ETF follows the CRSP US Small Cap Index and holds a basket of 1,439 stocks, with none holding more than 0.5% of assets. Vanguard Small-Cap ETF is widely spread across various sectors, with industrials, consumer discretionary, financials, information technology and healthcare being the top five.
Vanguard Small-Cap ETF has AUM of $42.7 billion and trades in a solid average daily volume of about 579,000 shares. VB charges 5 bps in fees per year from investors.
Schwab U.S. Small-Cap ETF tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, holding 1,751 stocks in its basket. Each security accounts for less than 0.4% of the assets. Schwab U.S. Small-Cap ETF is widely spread across sectors, with industrials, financials, health care, information technology and consumer discretionary with double-digit exposure each.
Schwab U.S. Small-Cap ETF has AUM of $13.3 billion and sees a solid volume of around 672,000 shares a day. It has an expense ratio of 0.04% (read: 4 ETFs to Tap the Upbeat U.S. Construction Sector).
Vanguard Russell 2000 ETF tracks the Russell 2000 Index, holding 2,006 stocks in its basket, with none making up for more than 0.5% of the assets. Vanguard Russell 2000 ETF is widely spread across various sectors, with industrials, healthcare, financials, consumer discretionary, and information technology being the top five.
Vanguard Russell 2000 ETF has accumulated $6 billion in its asset base and trades in an average daily volume of 1.1 million shares. The product charges 10 bps in annual fees.
SPDR Portfolio S&P 600 Small Cap ETF follows the S&P Small Cap 600 Index, holding 605 stocks in its basket. None of the firms make up for more than 0.7% of the assets. SPDR Portfolio S&P 600 Small Cap ETF is also widely spread across sectors with financials, industrials, consumer discretionary, and information technology making double-digit exposure each.
SPDR Portfolio S&P 600 Small Cap ETF has been able to manage $7.8 billion in its asset base and trades in a good volume of 1.2 million shares a day on average. SPSM charges 3 bps in annual fees.
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Small-Cap ETFs to Bet on Amid Dovish Fed, Mideast Conflict
Wall Street has shown significant gains to start this week on growing optimism that Fed rate increases might be over. However, escalating tensions in the Middle East continued to remain an overhang. Against such a backdrop, small-cap ETFs seem a prudent choice.
While there are many options available in this space to tap the strong trend, investors should consider ETFs having a Zacks Rank #1 (Strong Buy). iShares Core S&P Small-Cap ETF (IJR - Free Report) , Vanguard Small-Cap ETF (VB - Free Report) , Schwab U.S. Small-Cap ETF (SCHA - Free Report) , Vanguard Russell 2000 ETF (VTWO - Free Report) and SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report) could be solid plays.
Why Small-Caps?
The bouts of latest data suggest the economy is on a strong foothold. The International Monetary Fund raised the U.S. growth forecast by 0.3 percentage points to 2.1% for this year and by 0.5 percentage points to 1.5% for the next. As small-cap companies are more domestically tied, these are poised to outperform when the economy improves (read: 3 Sector ETFs & Stocks to Bet on Upbeat September Jobs Data).
The dovish comments from two Fed officials signaled that the recent surge in bond yields could lead to the tightening in credit conditions that the central bank is looking for. This could pave the way for policymakers to call an end to raising rates in this cycle, according to some analysts. Atlanta Fed President Raphael Bostic said that the U.S. central bank does not need to raise interest rates any further, and that he sees no recession ahead. This has pushed Treasury yields lower, leading to risk-on trade. According to CME's FedWatch tool, traders put the chance of interest rates remaining unchanged in November and December at 87% and around 71%, respectively.
Further, small-cap stocks are considered safer and better plays if political issues or economic turmoil creep into the picture as the pint-sized stocks generate most of their revenues from the domestic market. A surprise severe attack on Israel by Palestinian militants, Hamas, last weekend has deepened political uncertainty across the Middle East, thereby driving the appeal for small-cap stocks. Israeli Prime Minister Benjamin Netanyahu warned of an impending "long and difficult war.” The attack marked the deadliest offensive in 50 years (read: Defense ETFs Spike on Middle East Tensions).
ETFs to Buy
We have profiled the abovementioned ETFs here:
iShares Core S&P Small-Cap ETF (IJR - Free Report)
iShares Core S&P Small-Cap ETF offers exposure to U.S. small-cap stocks and follows the S&P SmallCap 600 Index. iShares Core S&P Small-Cap ETF holds 646 stocks in its basket, with none accounting for more than 0.7% of assets. Financials, industrials, consumer discretionary, and information technology are the top four sectors with double-digit exposure each.
iShares Core S&P Small-Cap ETF is the largest and most popular ETF in the small-cap space, with AUM of $64.7 billion and an average daily volume of 3.5 million shares. The product charges investors 6 bps in annual fees.
Vanguard Small-Cap ETF (VB - Free Report)
Vanguard Small-Cap ETF follows the CRSP US Small Cap Index and holds a basket of 1,439 stocks, with none holding more than 0.5% of assets. Vanguard Small-Cap ETF is widely spread across various sectors, with industrials, consumer discretionary, financials, information technology and healthcare being the top five.
Vanguard Small-Cap ETF has AUM of $42.7 billion and trades in a solid average daily volume of about 579,000 shares. VB charges 5 bps in fees per year from investors.
Schwab U.S. Small-Cap ETF (SCHA - Free Report)
Schwab U.S. Small-Cap ETF tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, holding 1,751 stocks in its basket. Each security accounts for less than 0.4% of the assets. Schwab U.S. Small-Cap ETF is widely spread across sectors, with industrials, financials, health care, information technology and consumer discretionary with double-digit exposure each.
Schwab U.S. Small-Cap ETF has AUM of $13.3 billion and sees a solid volume of around 672,000 shares a day. It has an expense ratio of 0.04% (read: 4 ETFs to Tap the Upbeat U.S. Construction Sector).
Vanguard Russell 2000 ETF (VTWO - Free Report)
Vanguard Russell 2000 ETF tracks the Russell 2000 Index, holding 2,006 stocks in its basket, with none making up for more than 0.5% of the assets. Vanguard Russell 2000 ETF is widely spread across various sectors, with industrials, healthcare, financials, consumer discretionary, and information technology being the top five.
Vanguard Russell 2000 ETF has accumulated $6 billion in its asset base and trades in an average daily volume of 1.1 million shares. The product charges 10 bps in annual fees.
SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report)
SPDR Portfolio S&P 600 Small Cap ETF follows the S&P Small Cap 600 Index, holding 605 stocks in its basket. None of the firms make up for more than 0.7% of the assets. SPDR Portfolio S&P 600 Small Cap ETF is also widely spread across sectors with financials, industrials, consumer discretionary, and information technology making double-digit exposure each.
SPDR Portfolio S&P 600 Small Cap ETF has been able to manage $7.8 billion in its asset base and trades in a good volume of 1.2 million shares a day on average. SPSM charges 3 bps in annual fees.