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ETF Picks For 3 Of America’s Best Small Companies

Carolyn Pairitz

When it comes to the world of exchange-traded products, there are virtually no limits as to how investors can choose to play nearly every corner of the market. From compelling quant-based methodologies to hyper-targeted sector funds, there is an ETF to fit essentially every investor’s investment objective. But for those looking to gain access to some of the most promising companies on the market, a look at the Forbes’ “World’s Most Innovative Companies” list may present itself with several lucrative opportunities [see also How To Pick The Right ETF Every Time].

These companies are selected based on a number of qualitative factors, including cash flow valuations, projected earnings and an “innovation premium.” Firms that make the list are considered to not only be the most innovative companies today, but also those that have laid the groundwork to continue being pioneers in their industries. For investors wanting to cash in on the top three most innovative companies, we outline several ways to play:

SolarWinds, INC (SWI): Affordable IT Software

With data traffic expected to triple over the next five years, SolarWinds is first on Forbes’ Best Small Companies in America list, as this software company continues to chip away at sales to much larger competitors IBM and HP. By selling software for IT departments that are 80% of functionality but at a tenth of the price, this small firm many not be small for long as sales have grown 38% since 2006 to create a market cap of $233 million.

For those looking to cash in on this technology firm, there is currently only one option for ETF investing, the Technology AlphaDEX Fund (FXL). This First Trust ETF has a higher than average expense ratio of 0.70% and SolarWinds only makes up for 2.42% of the portfolio, but with a three-year-return of almost 30% it seems the other companies it holds are also on their way up.

Questcor Pharmaceuticals, Inc (QCOR): Niche BioTech 

This biopharmaceutical company has created products in its niche market of serious and hard to treat autoimmune and inflammatory disorders, where it leads the industry in research and developing medication for market. Its flagship product, H.P. Acthar Gel, is prescribed to treat infantile spasms (a rare form of epilepsy), multiple sclerosis (where the body damages its own spinal cord), and nephrotic syndrome (where the body damages its own kidneys) [see also ETF Picks For 3 Of The World's Most Innovative Companies].

Currently, there are four exchange-traded products that offer exposure to Questcor, but none offer very high exposure, with the S&P Small-Cap 600 Growth ETF (VIOG) giving the most weighting of them all, 1.28%. The S&P Small-Cap 600 ETF (VIOO) also holds Questcor, but it makes up less than 1% of the fund, as this fund tends to leave higher growth potential companies to VIOG. Both the Russeell 2000 Growth ETF (VTWG) and Russell 2000 ETF (VTWO) also hold this pharmaceutical firm, but a lot of interest has dried up after healthcare provider Aetna decided to limit its reimbursement of Acthar Gel.

Cirrus Logic, Inc (CRUS): Semiconductor Kings 

This small semiconductor group has obtained over 1000 patents on over 700 products since its founding in 1981, and some pretty big clients, mainly Apple who accounted for 62% of sales last year. Their audio processors and converters can be found in smartphones, tablets, MP3s and other portable electronics, and their newest line of remote controlled LED lights are making waves in the industry. With fewer then 500 highly specialized employees, Cirrus has made almost $434 million in revenues and it deals with Apple should only help it grow more [see also Actionable Ideas for ETFs].

There are 10 ETFs with varying levels of exposure to Cirrus, but none with more weighting than the SPDR S&P Semiconductor ETF (XSD). This specialized technology fund leaves 2.78% of its fund holdings for Cirrus, while the S&P SmallCap Information Technology Portfolio (PSCT) is a close second with 2.71% weighting. For a more diversified view of the small cap market but still with exposure so our growing semiconductor firm, investors could try the S&P Smallcap 600 Pure Growth (RZG) or SmallCap Earnings Fund (EES). Other ETFs with meaningful allocations to Cirrus include:

  • Small Cap Growth AlphaDEX Fund (FYC)
  • SDPR S&P 600 Small Cap Growth ETF (SLYG)
  • S&P SmallCap 600 Growth Index Fund (IJT)
  • SPDR S&P 600 Small Cap ETF (SLY)
  • Core S&P Small-Cap ETF (IJR)
  • Russell 2000 Growth (IWO)

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Click here to read the original article on ETFdb.com.

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