3 Big Small-Cap ETFs See Inklings of Upside

U.S. small-cap stocks and exchange traded funds, such as the iShares Core S&P Small-Cap ETF (NYSEArca: IJR ) and the iShares Russell 2000 ETF (NYSEArca: IWM ) , have been trailing their large-cap counterparts in significant fashion this year. However, in recent days, traders have been nibbling at IWM. Still, some market observers are leery of further upside for smaller stocks. IWM is the biggest ETF tracking the widely followed Russell 2000 Index. Following Election Day, investors flocked to IWM, IJR and rival small-cap ETFs as markets priced in President Donald Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth. Data suggest IWM, the largest ETF dedicated to smaller U.S. stocks, saw significant inflows last week. Both IWM and IJR have notched third-quarter inflows. “Tax reform could also help lift smaller companies that are seeing a weaker dollar erode profits. Small caps posted flat earnings in the second quarter, compared with a 10 percent jump for large-cap firms, according to Steven DeSanctis, an equity strategist at Jefferies,” reports Elena Popina for Bloomberg. Following Election Day, investors flocked to IWM, IJR and rival small-cap ETFs as markets priced in President Donald Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth. However, investors pulled money from some major small-cap ETFs during the first quarter. Frugal investors looking for low-cost, small-cap index funds have a growing number of options from which to choose, including the Schwab U.S. Small-Cap ETF (SCHA) . Related: A Really Cheap Small-Cap ETF Charles Schwab lowered fees on five exchange traded funds in October. SCHA was part of that group. The fee cuts are seen as a response to BlackRock’s recent cost reductions on 15 of its iShares “Core” ETF suite. SCHA now charges 0.06% per year, or just $6 on a $10,000 stake, making it one of the least expensive small-cap ETFs on the market. “With the administration expected to elevate a campaign to overhaul U.S. tax policy next week, the focus is shifting back to benefits smaller companies may get from the planned reforms. Small caps, which surged after the election, have been hurt in 2017 amid a weaker dollar and higher interest rates that make it more costly for smaller firms to borrow money,” according to Bloomberg. A rebound for the dollar could also help small-caps, which generate most of their sales on a domestic basis. Tom Lydon's clients own shares of IWM. Read more on ETFtrends.com