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Small-Cap ETFs in the Driver’s Seat


With the largest U.S. Small Cap Equity tracking ETF, IWM (iShares Russell 2000, Expense Ratio 0.28%) breaking out to new all-time highs, and topping $100 per share, it is apparent that small caps are taking leadership in terms of performance in this market, and are now handily outperforming the S&P 500 Index in both the trailing one year period as well as from a year to date standpoint.

The heaviest weighted equity components of IWM, and we have to de-emphasize the use of the word “heaviest” since the top weighted individual component only has a 0.27% weighting are the following companies: Costar Group Inc. (0.27%), Acuity Brands (0.25%), Commvault Systems (0.25%), Firstmerit Corporation (0.24%), and Prosperity Bancshares Inc. (0.24%).

These companies are not exactly readily familiar household names. [Small-Cap ETF Hits Fresh All-Time High]

As the name Russell 2000 Index implies, owners of IWM receive exposure to potentially 2,000 individual companies that are classified as “small-caps” based on their market capitalization. The average market capitalization of an index member is approximately $1.26 billion, and the median market cap around $528 million.

Of course, as stocks progress in terms of rising stock prices over time, a small-cap stock can potentially “graduate” from the small cap universe and move up to the “mid-caps,” and perhaps ultimately the true big leagues, the “large

IWM does not have a problem with popularity, as the fund has been around since 2000 and trades an enormous 44.4 million shares on an average daily basis, and holds approximately $23.3 billion in assets under management currently.

Based on the recent break-out price action in IWM, it is not entirely surprising to see the fund be among the leaders in net inflows across all ETPs (IWM has added more than $1 billion via creation activity in recent sessions).

A headline in the small cap space caught our attention today, as the timing is impeccable given the appetite for small cap stocks at the moment that SSGA is rolling out a new ETF, TWOK (SPDR Russell 2000, Expense Ratio N/A) today. [IWM Gets New Rival]

Activity is sparse thus far as one might expect, but the launch seems fortuitous given what is going on in the space. There are a bevy of other products, many that incorporate leverage and are designed for opportunistic hedges if not short term directional trades, that track the Russell 2000 (either long or inverse) that should be watched closely here given the potential for a significant acceleration in daily activity, including TNA (Direxion Daily Small Cap Bull 3X, Expense Ratio 0.95%), URTY (ProShares UltraPro Russell 2000, Expense Ratio 0.95%), TWM (ProShares UltraShort Russell 2000, Expense Ratio 0.95%), TZA (Direxion Daily Small Cap Bear 3X, Expense Ratio 0.95%), SRTY (ProShares UltraPro Short Russell 2000, Expense Ratio 0.95%), and UWM (ProShares Ultra Russell 2000, Expense Ratio 0.95%).

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Street One Financial is an educational/research firm utilizing the Broker Dealer services of GWM Group Inc (RLCC) a FINRA registered Broker/Dealer. All trades are executed through GWM Group (RLCC) and cleared by Fidelity (NFS)DTC number 0226. Street One Financial LLC makes available products and services offered by GWM Group Inc., a registered broker-dealer and Member Securities Investor Protection Corporation (SIPC), Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.