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5 Small-Cap Sector ETFs to Track on Earnings Strength

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Small-cap stocks staged a great performance to start November. The cohort (up about 1.4%) has underperformed its bigger peers like the S&P 500 (up 10.1%) and the Nasdaq (up about 11%) in the past six-month period. But things are taking a turn for the better for the pint-sized stocks. The small-cap benchmark Russell 2000 rose to close at an all-time high on Nov 2.

Still, it’s earnings time. Investors must be interested in knowing how the earnings picture is evolving for the segment. That would give investors a clear idea in assessing the future performance of an otherwise still-undervalued small-cap segment.

Q3 Performance: S&P 600 Versus 500

Third-quarter earnings for the S&P 500 are expected to be up 30.3% year over year on 14.1% higher revenues. This increment in earnings will follow a 95% increase in Q2 and a 50.1% uptick in Q1. Revenue growth in Q2 and Q1 was 25.3% and 10.4%, respectively.

Looking at Q3 as a whole for the small-cap index, total earnings are expected to be up 44.4% from the same period last year on 16.1% higher revenues. The growth in earnings will follow a 280% expansion in Q2 and a 339.8% uptick in Q1, per the Zacks Earnings Trends issued on Oct 20, 2021. Revenue growth in the past two quarters was 34.4% and 7.8%, respectively.

Against this backdrop, below we highlight a few small-cap sector ETFs that are promising a better earnings and revenue growth rate in the ongoing reporting season.

Sector ETFs in Focus

Industrial Products — Invesco S&P SmallCap Industrials ETF PSCI

This sector of the S&P 600 Index is likely to record 32.4% earnings growth in Q3 on 18.2% higher revenues. The fund has gained 5.8% this year.

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

The consumer discretionary sector is likely to end the third quarter with a 16.8% increase in earnings and 25.6% revenue gains. The retail sector is likely to see earnings growth of 66.9% on 13.3% revenue growth. The fund PSCC has gained 3.9% in the past three months.

Basic Materials — Invesco S&P SmallCap Materials ETF PSCM

Earnings are likely to be up 177% year over year on 17.8% higher revenues. The fund has advanced 3.9% in the past three months.

Transportation — SPDR S&P Transportation ETF XTN

Earnings are likely to be 1255.1% higher while revenues may see a 35.1% uptick. The fund XTN has gained 2.5% in the past three months. Though not fully exposed to the small-cap stocks, the underlying S&P Transportation Select Industry Index of the fund XTN represents the transportation segment of the S&P Total Market Index.

Technology —   Invesco S&P SmallCap Information Technology ETF PSCT

The sector is likely to close out the third quarter with a 47.6% increase in earnings and 10.8% revenue gains. The fund PSCT has added 4.5% in the past three months.


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Invesco S&P SmallCap Information Technology ETF (PSCT): ETF Research Reports
 
SPDR S&P Transportation ETF (XTN): ETF Research Reports
 
Invesco S&P SmallCap Industrials ETF (PSCI): ETF Research Reports
 
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports
 
Invesco S&P SmallCap Materials ETF (PSCM): ETF Research Reports
 
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Zacks Investment Research