It may be stating the obvious, but small-cap stocks and related exchange traded funds perform well during bull markets. The combination of the value and small size factors is potent over long holding periods, according to historical data.
With that second point in mind, it may not be surprising that the best-performing small-cap ETF during the current bull market is also a value fund. The honor of the top small-cap ETF during this current market belongs to the Guggenheim S&P SmallCap 600 Pure Value ETF (NYSE: RZV).
RZV follows the S&P SmallCap 600 Pure Value Index. That benchmark “measures value in separate dimensions across three risk factors: book value to price ratio, earnings to price ratio and sales to price ratio. The Pure Style Value Index Series only includes those stocks from the parent index that exhibit strong value characteristics and weights them by style score,” according to Guggenheim.
RZV's Run Of Dominance
The current bull market began March 10, 2009. From that day through March 5, 2018, RZV has put together average annualized returns of 25.5 percent, good for a cumulative return of over 670 percent, according to Morningstar.
In other words, a $10,000 investment in RZV on March 10, 2009 would have been worth more than $77,000 on March 5, 2018. To put RZV's bull market dominance among small-cap ETFs into context, a $10,000 investment in the second-best small-cap ETF on March 10, 2009 would have turned into about $67,000 today.
Part of RZV's long-term advantage lies in the fact that it only holds value stocks, whereas some funds advertised as value plays can hold growth and/or blended stocks. That is good news for RZV investors when small-cap value is in favor, but puts those investors at risk of underperformance when small-cap growth is more in favor.
More RZV Facts
Small-cap value stocks are not always less volatile than broader small stock benchmarks. RZV's standard deviation of 19.62 percent is significantly higher than the 13.93 percent found in the Russell 2000 Index.
RZV, which celebrated its 12th birthday earlier this month, holds over 160 stocks. The ETF allocates about 32 percent of its weight to consumer discretionary stocks and a combined 30 percent of its weight to industrial and technology names.
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