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5 Sector ETF Winners Amid Small-Cap Earnings Underperformance

Sanghamitra Saha

Small caps have been underperforming large caps this year. iShares Russell 2000 ETF IWM and SPDR S&P 600 Small Cap ETF SLY are up 18.2% and 15.8%, respectively, compared with the 24.3% gain in the S&P 500 Index. This underperformance was prevalent in the past month as well, a period packed with corporate earnings releases.

The reason could be consistently weak earnings witnessed by the small caps compared with their bigger counterparts.

Q3 Performance: S&P 600 Versus 500

The third-quarter earnings season is almost drawing to a close with 88% of the S&P 600 Index’s total participants having reported so far. Earnings are down 19.6% year over year on 1.8% higher revenues. About 62.6% members’ EPS beat estimates while 57.8% surpassed on the top line as the Earnings Trends issued on Nov 13, 2019 show.

Looking at Q3 as a whole for the small-cap index, total Q3 earnings are expected to be down 19.5% from the same period last year on 3.6% higher revenues. The decline in earnings follow an 11.7% drop in earnings in Q2 and 17.3% slump in earnings in Q1, respectively.

About 91% of the large-cap index S&P 500 has already reported earnings decline of 1.7% on 4.6% higher revenues. The S&P 500 Index has so far produced a blended beat ratio of 45.9%. For the third quarter, the S&P 500 is likely to be down 2% on 4.3% higher revenues.

Consumer Staples — Invesco S&P SmallCap Consumer Staples ETF PSCC

The sector is likely to end the third quarter with 26.4% increase in earnings and a 17.2% revenue rise. The fund PSCC has gained 3.6% in the past month against 3.8% gain in the S&P 500 Index.

Consumer Discretionary — Invesco S&P SmallCap Consumer Discretionary ETF PSCD

Earnings are likely to be 12.0% higher while revenues will likely see a 10.1% uptick. However, the fund PSCD is up only 1.7% in the past month.

Medical — Invesco S&P SmallCap Health Care ETF PSCH

The sector is likely to record 10% earnings growth on 2.4% higher revenues. The fund has jumped 4.7% in the past month (as of Nov 19, 2019).

Construction — Invesco Dynamic Building & Construction ETF PKB

The sector is likely to record 11.3% earnings growth on 5.5% higher revenues. The fund has advanced 1.4% in the past month (as of Nov 19, 2019) (read: ETFs in Focus as US Homebuilder Sentiment Drops in November).

Finance — Invesco S&P SmallCap Financials ETF PSCF

Earnings are likely to be up 12.4% year over year on 7.7% higher revenues. The fund has tacked on 1.7% gains in the past month (as of Nov 19, 2019). 

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Invesco S&P SmallCap Consumer Staples ETF (PSCC): ETF Research Reports
 
Invesco S&P SmallCap Health Care ETF (PSCH): ETF Research Reports
 
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
 
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports
 
Invesco S&P SmallCap Financials ETF (PSCF): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Reports
 
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