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PowerShares Launches Small-Cap Equity ETF

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PowerShares has launched a new equity fund focused on providing exposure to small-cap equity markets.


PowerShares PureBeta MSCI USA Small Cap Portfolio (PBSM) tracks the MSCI USA Small Cap Index.


Fund Characteristics


The fund seeks to provide exposure to small-cap U.S. equities. It has AUM of $2.6 million and seeks to provide cheap exposure to small-cap equity markets. It charges 6 basis points as fee per year and holds 1804 stocks in its portfolio. It bears less concentration risk as less than 3% of the assets are allocated to the top 10 holdings and is well diversified across sectors.


From a sector look, Information Technology, Financials and Industrials are the top three allocations of this fund, with 16.9%, 15.8% and 15.2% exposure, respectively (as of Oct 13, 2017).


From an individual holdings perspective, the fund’s top three holdings are Take-Two Interactive Software Inc, The Chemours Co and Cognex Corp, with 0.3% exposure to each (as of Oct 13, 2017).


Economic Scenario


The U.S. economy registered strong growth of 3.1% in the second quarter. Small-cap companies usually focus more on the domestic segment compared to larger companies, which tend to have more international exposure. U.S. economic fundamentals seem to be strong and Republicans have been advancing on the tax reform.


Since small-caps generate most of their revenue from the domestic markets, a proposed cut in the corporate tax rate will be beneficial for companies in this segment (read: ETFs to Benefit from Trump Tax Plan).


Competition


The fund faces a lot of competition from other small-cap equity focused ETFs. Below we discuss a few ETFs that seek to provide exposure to this corner (see all Small Cap ETFs here).


iShares Russell 2000 ETF (IWM - Free Report)


This fund has AUM of $41.6 billion and seeks to provide exposure to the small-cap equity market. It charges 20 basis points in fee per year and holds 1994 stocks in its portfolio. From a sector look, Financials, Information Technology and Industrials are the top three allocations of this fund, with 18.2%, 17.2% and 15.0% exposure, respectively (as of Oct 13, 2017). From an individual holdings perspective, the fund’s top three holdings are Bluebird Bio Inc, Exact Sciences Corp and MKS Instruments Inc, with 0.3% exposure to each (as of Oct 13, 2017). The fund has returned 10.8% year to date and 24.0% in a year (as of Oct 13, 2017). IWM currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Small-Cap ETF (VB - Free Report)


This fund has AUM of $19.9 billion and seeks to provide exposure to the small-cap equity market. It charges 6 basis points in fee per year and holds 1431 stocks in its portfolio. From a sector look, Financials, Industrials and Information Technology are the top three allocations of this fund, with 25.5%, 20.5% and 11.3% exposure, respectively (as of Jun 30, 2017). From an individual holdings perspective, the fund’s top three holdings are Teleflex Inc, Take-Two Interactive Software Inc. and CDW Corp., with 0.3% exposure to each (as of Sep 30, 2017). The fund has returned 10.7% year to date and 20.2% in a year (as of Oct 13, 2017). VB currently has a Zacks ETF Rank #3 with a Medium risk outlook.


Schwab U.S. Small-Cap ETF (SCHA - Free Report)


This fund has AUM of $6.2 billion and seeks to provide exposure to the small-cap equity market. It charges 5 basis points in fee per year and holds 1754 stocks in its portfolio. From a sector look, Financials, Information Technology and Industrials are the top three allocations of this fund, with 17.2%, 16.7% and 14.3% exposure, respectively (as of Jun 30, 2017). From an individual holdings perspective, the fund’s top three holdings are Oshkosh Corp, Thor Industries Inc and Coherent Inc, with 0.2% exposure to each (as of Oct 13, 2017). The fund has returned 10.4% year to date and 21.3% in a year (as of Oct 13, 2017). SCHA currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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