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5 Small-Cap ETFs Beating S&P 500 in 2020

Sanghamitra Saha

After a wobbly start, Wall Street bulls are back with a bang in 2020, with key U.S. indexes hitting record highs. Though all three large-cap indexes — the S&P 500, the Nasdaq and the Dow Jones — rallied, the small-caps are exhibiting greater momentum as well. iShares Russell 2000 ETF IWM is up 2.3% this year, beating the SPDR S&P 500 ETF’s SPY 1.8% gains.

The pint-sized stocks have every reason to rally faster. More compelling valuation, relative underperformance when compared to the large-caps in 2019, a dovish Fed and easing trade tensions have been driving the small-cap cohort (read: Top-Ranked Small-Cap ETFs to Buy for 2020).

Small-cap securities have historically outperformed in January. “The January Effect is theorized to occur when investors sell winners to incur year-end capital gains taxes in December and use those funds to speculate on weaker performers,” per Investopedia. Small-cap stocks that lagged large caps in major part of 2019 are poised for a rebound now as the domestic economy is in good shape and the pint-sized stocks are closely-related to the health of the domestic economy.

Though the projections for the fourth-quarter U.S. economic growth have been subdued, this bodes well for the market as investors probably took it as the continuation of the easy money policy by the Fed in 2020. Notably, Atlanta Federal Reserve cut its fourth-quarter economic-growth estimate to below 2%. The New York Fed Staff Nowcast stood at 1.1% for the fourth quarter and 1.2% for the first quarter of 2020 as of Jan 10.

Below we highlight a few small-cap ETFs that have been beating the S&P 500 year to date.

iShares Russell 2000 Growth ETF IWO – Up 3.7%

The Zacks Rank #1 (Strong Buy) fund tracks the Russell 2000 Growth Index. It is a subset of the Russell 2000 Index and represents approximately 51% of the total market value of the Russell 2000 Index. Healthcare (30.1%), Industrials (18.9%), Information Technology (17.9%) and Consumer Discretionary (11.98%) have double-digit weights in the fund.

Vanguard Russell 2000 Growth ETF VTWG – Up 3.7%

The Zacks Rank #1 fund is heavy on the healthcare sector with about one-third of the exposure. Three other sectors that have a double-digit weight in the fund are technology (16%), Producer Durables (16%) and Financial (10.9%). The fund charges 15 bps in fees.

iShares Morningstar Small-Cap Growth ETF JKK – Up 3.6%

The Zacks Rank #1 fund seeks investment results that correspond generally to the price and yield performance of the Morningstar Small Growth Index. Information Technology (27.9%), Health Care (24.1%), Industrials (15.3%) and Consumer Discretionary (13%) are the top three sectors of the fund.

Vanguard Small Cap Growth ETF VBK – Up 3.3%

The underlying CRSP U.S. Small Cap Growth Index measures the investment return of small-capitalization growth stocks. Healthcare (21.4%), Technology (19.4%), Industrials (19.7%), Financials (15.2%) and Consumer Services (12.7%) are the sectors it is heavily weighted on. The fund charges 7 bps in fees.

First Trust Mid Cap Growth AlphaDEX Fund FNY – Up 3.0%

The Zacks Rank #1 (Strong Buy) fund tracks the NASDAQ AlphaDEX Mid Cap Growth Index, which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 600 Mid Cap Growth Index. The fund charges 70 bps in fees.

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iShares Russell 2000 ETF (IWM): ETF Research Reports
 
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
iShares Morningstar Small-Cap Growth ETF (JKK): ETF Research Reports
 
Vanguard Russell 2000 Growth ETF (VTWG): ETF Research Reports
 
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
First Trust Mid Cap Growth AlphaDEX Fund (FNY): ETF Research Reports
 
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