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The S&P 500 entered correction territory in early February, as it declined more than 10% from the record high set in January. Robust wage growth and jobs data introduced fears of inflation making a comeback and led investors to bet on aggressive rate hikes.
The markets recovered some of its losses from early February, as the S&P 500 was down 3.8% and Dow Jones 4.4% in February. However, March was not a sweet beginning for stocks across the globe, as President Donald Trump’s plans to impose tariffs didn’t go down well with investors.
Trump’s America First agenda has sparked fears of a trade war, as he told steel and aluminum industry executives in a meeting about his intention of implementing a 25% tariff on steel imports and a 10% tariff on aluminum imports (read: Trump Tariffs Put These Sector ETFs & Stocks in Focus).
Small-Cap Appeal
Trump’s tax reform was signed into law late last year, driving U.S. equity markets higher. As a part of the measures introduced in the reform, the corporate tax rate was slashed to 21% from the previous 35%. Small-caps are significantly expected to benefit from this move, given their domestic exposure.
Being domestically focused, the current market scenario also bodes well for small-cap stocks. Since these stocks have less international exposure, they are less exposed to fears of trade wars and benefit from the economic scenario at home (read: Watch These ETFs as Trade War Risks Rise).
Although the tariffs might lead to an increase in raw material cost for manufacturers who use these metals, since they might need to pass on a certain percentage of the rise to consumers, domestic steel producers are expected to derive benefit. Moreover, at a time when geopolitical risks in the Middle East are bothering the markets, small-caps which are less exposed to changes due to geopolitics might come under investors’ radar.
Small caps provide a greater growth potential than large and mid caps in an improving domestic economy. Although GDP growth in the final quarter of 2017 was revised down to 2.5% compared with 3.2% in the previous quarter, the economy is expected to gain momentum in the coming months. As the impact of Trump’s tax cuts and spending kick in, the economy is expected to pick up speed and report strong economic growth.
Let us now discuss a few ETFs focused on providing exposure to U.S. small-cap equities.
This fund seeks to provide exposure to small cap U.S. companies and tracks the CRSP US Small Cap Index. It witnessed inflows of $157.5 million in the two weeks ending Mar 2, 2018 compared to $873.4 million in outflows for SPDR S&P 500 ETF Trust (SPY - Free Report) in the same period.
It has AUM of $21.6 billion and charges a fee of 6 basis points a year. From a sector look, the fund has high exposures to Financials, Industrials and Consumer Services with 24.0%, 21.0% and 11.9% allocation, respectively (as of Jan 31, 2018). The fund’s top three holdings are Nektar Therapeutics (NKTR - Free Report) , Diamondback Energy Inc. (FANG - Free Report) and Spirit AeroSystems Holdings Inc. (SPR - Free Report) with 0.4%, 0.3% and 0.3% allocation, respectively (as of Jan 31, 2018). The fund has returned 11.8% in a year. It has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.
This fund seeks to provide exposure to small cap U.S. companies and tracks the Dow Jones U.S. Small-Cap Total Stock Market Total Return Index. It witnessed inflows of $45.1 million in the two weeks ending Mar 2, 2018.
It has AUM of $7.0 billion and charges a fee of 5 basis points a year. From a sector look, the fund has high exposures to Financials, Information Technology and Industrials with 17.9%, 15.7% and 14.9% allocation, respectively (as of Dec 31, 2017). The fund’s top three holdings are Nektar Therapeutics, Bluebird Bio Inc (BLUE - Free Report) and Grubhub Inc with 0.6%, 0.4% and 0.3% allocation, respectively (as of Mar 2, 2018). The fund has returned 11.7% in a year. It has a Zacks ETF Rank #3, with a Medium risk outlook.
This fund seeks to provide exposure to small cap U.S. companies and tracks the Russell 2000 Index. It witnessed inflows of $27.0 million in the two weeks ending Mar 2, 2018.
It has AUM of $789.1 million and charges a fee of 5 basis points a year. From a sector look, the fund has high exposures to Financials, Health Care and Consumer Discretionary with 25.1%, 14.7% and 14.4% allocation, respectively (as of Mar 2, 2018). The fund’s top three holdings are Nektar Therapeutics, Grubhub Inc and SAGE Therapeutics Inc. (SAGE - Free Report) with 0.7%, 0.3% and 0.3% allocation, respectively (as of Mar 2, 2018). The fund has returned 12.4% in a year. It has a Zacks ETF Rank #3.
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3 Small-Cap ETFs Experiencing High Inflows
The S&P 500 entered correction territory in early February, as it declined more than 10% from the record high set in January. Robust wage growth and jobs data introduced fears of inflation making a comeback and led investors to bet on aggressive rate hikes.
The markets recovered some of its losses from early February, as the S&P 500 was down 3.8% and Dow Jones 4.4% in February. However, March was not a sweet beginning for stocks across the globe, as President Donald Trump’s plans to impose tariffs didn’t go down well with investors.
Trump’s America First agenda has sparked fears of a trade war, as he told steel and aluminum industry executives in a meeting about his intention of implementing a 25% tariff on steel imports and a 10% tariff on aluminum imports (read: Trump Tariffs Put These Sector ETFs & Stocks in Focus).
Small-Cap Appeal
Trump’s tax reform was signed into law late last year, driving U.S. equity markets higher. As a part of the measures introduced in the reform, the corporate tax rate was slashed to 21% from the previous 35%. Small-caps are significantly expected to benefit from this move, given their domestic exposure.
Being domestically focused, the current market scenario also bodes well for small-cap stocks. Since these stocks have less international exposure, they are less exposed to fears of trade wars and benefit from the economic scenario at home (read: Watch These ETFs as Trade War Risks Rise).
Although the tariffs might lead to an increase in raw material cost for manufacturers who use these metals, since they might need to pass on a certain percentage of the rise to consumers, domestic steel producers are expected to derive benefit. Moreover, at a time when geopolitical risks in the Middle East are bothering the markets, small-caps which are less exposed to changes due to geopolitics might come under investors’ radar.
Small caps provide a greater growth potential than large and mid caps in an improving domestic economy. Although GDP growth in the final quarter of 2017 was revised down to 2.5% compared with 3.2% in the previous quarter, the economy is expected to gain momentum in the coming months. As the impact of Trump’s tax cuts and spending kick in, the economy is expected to pick up speed and report strong economic growth.
Let us now discuss a few ETFs focused on providing exposure to U.S. small-cap equities.
Vanguard Small-Cap ETF (VB - Free Report)
This fund seeks to provide exposure to small cap U.S. companies and tracks the CRSP US Small Cap Index. It witnessed inflows of $157.5 million in the two weeks ending Mar 2, 2018 compared to $873.4 million in outflows for SPDR S&P 500 ETF Trust (SPY - Free Report) in the same period.
It has AUM of $21.6 billion and charges a fee of 6 basis points a year. From a sector look, the fund has high exposures to Financials, Industrials and Consumer Services with 24.0%, 21.0% and 11.9% allocation, respectively (as of Jan 31, 2018). The fund’s top three holdings are Nektar Therapeutics (NKTR - Free Report) , Diamondback Energy Inc. (FANG - Free Report) and Spirit AeroSystems Holdings Inc. (SPR - Free Report) with 0.4%, 0.3% and 0.3% allocation, respectively (as of Jan 31, 2018). The fund has returned 11.8% in a year. It has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.
Schwab U.S. Small-Cap ETF (SCHA - Free Report)
This fund seeks to provide exposure to small cap U.S. companies and tracks the Dow Jones U.S. Small-Cap Total Stock Market Total Return Index. It witnessed inflows of $45.1 million in the two weeks ending Mar 2, 2018.
It has AUM of $7.0 billion and charges a fee of 5 basis points a year. From a sector look, the fund has high exposures to Financials, Information Technology and Industrials with 17.9%, 15.7% and 14.9% allocation, respectively (as of Dec 31, 2017). The fund’s top three holdings are Nektar Therapeutics, Bluebird Bio Inc (BLUE - Free Report) and Grubhub Inc with 0.6%, 0.4% and 0.3% allocation, respectively (as of Mar 2, 2018). The fund has returned 11.7% in a year. It has a Zacks ETF Rank #3, with a Medium risk outlook.
SPDR Portfolio Small Cap ETF (SPSM - Free Report)
This fund seeks to provide exposure to small cap U.S. companies and tracks the Russell 2000 Index. It witnessed inflows of $27.0 million in the two weeks ending Mar 2, 2018.
It has AUM of $789.1 million and charges a fee of 5 basis points a year. From a sector look, the fund has high exposures to Financials, Health Care and Consumer Discretionary with 25.1%, 14.7% and 14.4% allocation, respectively (as of Mar 2, 2018). The fund’s top three holdings are Nektar Therapeutics, Grubhub Inc and SAGE Therapeutics Inc. (SAGE - Free Report) with 0.7%, 0.3% and 0.3% allocation, respectively (as of Mar 2, 2018). The fund has returned 12.4% in a year. It has a Zacks ETF Rank #3.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>