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Bet on "American Magic" With 4 Solid Small-Cap Sector ETFs
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Who doesn’t want to follow billionaire investor Warren Buffett? And with coronavirus looming over the social, economic and investment world this year, many must have waited with bated breath for the Oracle of Omaha regarding this issue (read: 5 ETF Strategies to Follow Warren Buffett's Coronavirus Tips).
In the annual meeting of Berkshire Hathaway, Buffett said “American magic” will spur U.S. economic recovery, among many other ideas. Since small-cap investing is the best way to bet on domestic economic recovery, investors may take note of pint-sized stocks amid the gradual reopening of the U.S. economy.
An increasing number of states are expected to reopen their economies in the first two weeks of May. New York, in particular, aims to ease restrictions on manufacturers, builders and certain retailers in the near term.
Investors should note that coronavirus-led lockdowns and shutting down of businesses have left companies with a severe cash crunch. Small caps with lesser financial support have become more vulnerable to the virus-led fallout.
However, a more compelling valuation, relative underperformance compared to the large caps, a super-dovish Fed and the U.S. government’s gigantic aid to small-and-mid-sized companies amid coronavirus have been driving the small-cap cohort lately. Small-cap index Russell 2000 ETF (IWM - Free Report) has gained 20.3% in the past month (as of May 6, 2020) versus 15.2% advance in the S&P 500 ETF (SPY - Free Report) .
What Could Boost Small-Caps Ahead?
Small caps also gained on massive monetary and fiscal stimulus. In early April, the Fed announced an investment of up to $2.3 trillion in loans to aid small and mid-sized businesses, and state and local governments as well as the purchase of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities. The Fed’s Main Street Lending program can be considered as a plus for pint-sized stocks (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).
The U.S. government’s virus relief bill should lend support to small-cap stocks. There was already a $349 billion forgivable loan program in place.The loans at issue were being made through the Paycheck Protection Program, which offers up to $10 million in forgivable loans to businesses with 500 or fewer employees.
Due to lockdowns, the ISM Manufacturing PMI for the United States dropped to 41.5 in April 2020 from 49.1 in the previous month, but it remained quite above the market expectation of 36.9. The latest reading marked the steepest clip of contraction in the manufacturing sector since April 2009, as the new orders sub-index plunged to the lowest level since December 2008 and the employment sub-index dropped to the lowest since February 1949, per tradingeconomics.
Winning Small-Cap Sector ETFs
Sprott Junior Gold Miners ETF (SGDJ - Free Report) – Up 33.4% past month
The underlying Solactive Junior Gold Miners Custom Factors Index aims to track the performance of small-capitalization gold companies whose stocks are listed on regulated exchanges.
Invesco Dynamic Building & Construction ETF (PKB - Free Report) – Up 29.4% past month
ALPS Medical Breakthroughs ETF (SBIO - Free Report) – Up 34.5% past month
The underlying S-Network Medical Breakthroughs Index captures research & development opportunities in the pharmaceutical industry. It consists of small-cap and mid-cap pharmaceutical and biotechnology stocks listed on U.S. stock exchanges that have one or more drugs in either Phase II or Phase III US FDA clinical trials (read: First-Mover Pandemic Disease Fight ETF On The Way).
Invesco Solar ETF (TAN - Free Report) – Up 28.7% past month
The underlying MAC Global Solar Energy Index comprises companies in the solar energy industry. The fund is mainly mixed with mid-and-small-cap stocks (read: Ride the Thematic Investing Trend With These ETFs).
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Bet on "American Magic" With 4 Solid Small-Cap Sector ETFs
Who doesn’t want to follow billionaire investor Warren Buffett? And with coronavirus looming over the social, economic and investment world this year, many must have waited with bated breath for the Oracle of Omaha regarding this issue (read: 5 ETF Strategies to Follow Warren Buffett's Coronavirus Tips).
In the annual meeting of Berkshire Hathaway, Buffett said “American magic” will spur U.S. economic recovery, among many other ideas. Since small-cap investing is the best way to bet on domestic economic recovery, investors may take note of pint-sized stocks amid the gradual reopening of the U.S. economy.
An increasing number of states are expected to reopen their economies in the first two weeks of May. New York, in particular, aims to ease restrictions on manufacturers, builders and certain retailers in the near term.
Investors should note that coronavirus-led lockdowns and shutting down of businesses have left companies with a severe cash crunch. Small caps with lesser financial support have become more vulnerable to the virus-led fallout.
However, a more compelling valuation, relative underperformance compared to the large caps, a super-dovish Fed and the U.S. government’s gigantic aid to small-and-mid-sized companies amid coronavirus have been driving the small-cap cohort lately. Small-cap index Russell 2000 ETF (IWM - Free Report) has gained 20.3% in the past month (as of May 6, 2020) versus 15.2% advance in the S&P 500 ETF (SPY - Free Report) .
What Could Boost Small-Caps Ahead?
Small caps also gained on massive monetary and fiscal stimulus. In early April, the Fed announced an investment of up to $2.3 trillion in loans to aid small and mid-sized businesses, and state and local governments as well as the purchase of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities. The Fed’s Main Street Lending program can be considered as a plus for pint-sized stocks (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).
The U.S. government’s virus relief bill should lend support to small-cap stocks. There was already a $349 billion forgivable loan program in place.The loans at issue were being made through the Paycheck Protection Program, which offers up to $10 million in forgivable loans to businesses with 500 or fewer employees.
Due to lockdowns, the ISM Manufacturing PMI for the United States dropped to 41.5 in April 2020 from 49.1 in the previous month, but it remained quite above the market expectation of 36.9. The latest reading marked the steepest clip of contraction in the manufacturing sector since April 2009, as the new orders sub-index plunged to the lowest level since December 2008 and the employment sub-index dropped to the lowest since February 1949, per tradingeconomics.
Winning Small-Cap Sector ETFs
Sprott Junior Gold Miners ETF (SGDJ - Free Report) – Up 33.4% past month
The underlying Solactive Junior Gold Miners Custom Factors Index aims to track the performance of small-capitalization gold companies whose stocks are listed on regulated exchanges.
Invesco Dynamic Building & Construction ETF (PKB - Free Report) – Up 29.4% past month
The Dynamic Building & Construction Intellidex Index comprises stocks of U.S. building and construction companies (read: Small-Cap Earnings Picture: 5 Sector ETF Stars).
ALPS Medical Breakthroughs ETF (SBIO - Free Report) – Up 34.5% past month
The underlying S-Network Medical Breakthroughs Index captures research & development opportunities in the pharmaceutical industry. It consists of small-cap and mid-cap pharmaceutical and biotechnology stocks listed on U.S. stock exchanges that have one or more drugs in either Phase II or Phase III US FDA clinical trials (read: First-Mover Pandemic Disease Fight ETF On The Way).
Invesco Solar ETF (TAN - Free Report) – Up 28.7% past month
The underlying MAC Global Solar Energy Index comprises companies in the solar energy industry. The fund is mainly mixed with mid-and-small-cap stocks (read: Ride the Thematic Investing Trend With These ETFs).
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 >>