With Wall Street making an impressive comeback in recent weeks, the small-cap space is leading the rally. This is especially true as the Russell 2000 Index has risen 5.6% in a month compared with a gain of 3.9% for the S&P 500 and 5.2% for the S&P Mid Cap 400 Index (read: Why Small Cap ETFs Are Rising).
The outperformance was mainly driven by bargain hunting and rotation to cheaper areas of the market. Also, the Fed’s easing money policies and moderation in trade tensions added to the strength. The Fed slashed interest rates for the second time since the financial crisis by 25 bps to 1.75-2% in its policy meeting to sustain a decade-long economic expansion. Lower interest rates make borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt.
In fact, low rates bode well for the pint-sized stocks, perking up economic activities and resulting in higher spending, thus boosting domestically focused companies (read: Sector ETFs, Stocks Set to Explode After Another Rate Cut).
Further, the latest bout of upbeat data pointing to an increase in inflation, higher consumer and business confidence, retail sales, strong recovery in the U.S. housing market and solid manufacturing activity underscore the strength of the economy. As the pint-sized stocks are closely tied to the U.S. economy and do not have much exposure to the international market, these stocks generally outperform on improving American economic health.
While there are winners in almost every corner of the small-cap space, we have presented four top-performing, small-cap ETFs from different sectors over the past month.
Invesco S&P SmallCap Industrials ETF (PSCI - Free Report) – Up 8.9%
This product follows the S&P SmallCap 600 Capped Industrials Index, which measures the performance of companies engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense, and general manufacturing. The product has a basket of 94 securities with each accounting for less than 3.4% share and expense ratio of 0.29%. It has AUM of $57.7 million while trading in lower volume of 4,000 shares. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Small-Cap Space on Fire This Week: 6 Best ETFs).
First Trust NASDAQ ABA Community Bank Index Fund (QABA - Free Report) – Up 8%
This ETF offers exposure to banks and thrifts, and tracks the NASDAQ OMX ABA Community Bank Index, holding 165 stocks in its basket. It is well spread out across various components as none accounts for more than 2.63% of assets. The fund has accumulated $150.9 million in its asset base and charges 60 bps in annual fees. It trades in volume of 20,000 shares a day on average and has a Zacks ETF Rank #3 with a High risk outlook.
Invesco S&P SmallCap Information Technology ETF (PSCT - Free Report) – Up 7.8%
This fund offers exposure to the companies engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies by tracking the S&P SmallCap 600 Capped Information Technology Index. Holding 84 securities in its basket, the product is well spread across securities with each holding no more than 3.8% share. The fund has managed $312.9 million in its asset base and trades in light average daily volume of about 10,000 shares. The ETF charges 29 bps in fees per year from its investors. It has a Zacks ETF Rank #3 with a High risk outlook (read: Small-Cap ETFs Loved by Investors: Here's Why).
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD - Free Report) – Up 6.8%
The fund follows the S&P SmallCap 600 Capped Consumer Discretionary Index and holds 97 securities in its basket with none accounting for more than 3.22% of the assets. The product has attracted $23.9 million in AUM while seeing paltry volume of 8,000 shares per day. The ETF charges 29 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
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