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Small-Caps Beat S&P 500 in Q1: 5 ETF Winners

Sanghamitra Saha
The U.S. economic growth in the first quarter breezed past expectations and marked the best first-quarter growth in four years. These ETF areas should gain from this momentum.

Small-cap stocks have been overriding large caps this year as evident from the 15.3% year-to-date gains of iShares Russell 2000 ETF IWM versus a 14.4% jump of the large-cap fund SPDR S&P 500 ETF SPY. Coming off its worst quarterly performance (down 20.5%) since the September quarter of 2011, Russell 2000 added 14.2% in Q1.

The earlier months of the quarter saw the maximum gains in the Russell 2000 with January gains being 11.2% and February notching a 5.1% uptick. However, in March, the index skidded as recession jitters loomed large in the United States (read: Top ETF Stories of March).

Small caps are seen as a measure of domestic well-being. Though U.S. economic growth momentum has been slowing, it is still better-positioned than most developed economies. The labor market is steady as well.

Meanwhile, Eurozone Q4 GDP growth (0.2%) was at a four-year low. The Japanese economy advanced 0.5% sequentially in Q4, reversing from a 0.7% contraction in the previous period. Against this backdrop, it made sense for investors to limit international exposure and stick to small-cap stocks.

Cheaper valuation also veered investors toward this segment. Even after gaining 14.2% in Q1, the Russell 2000 is down 11.6% from its 52-week high level. Plus, a dovish Fed resulting in lower rates did its share of job in driving small caps. In view of this, we highlight a few small-cap ETFs that led the rally this year.

MFAM Small-Cap Growth ETF MFMS — Up 24.1%

This ETF is active and does not track a benchmark. As of Apr 3, 2019, no stock accounted for more than 2.24% of the basket. It charges 85 bps in fees.

Invesco S&P SmallCap Energy ETF PSCE — Up 23.8%

The underlying S&P SmallCap 600 Capped Energy Index is designed to measure the overall performance of common stocks of U.S. energy companies. It charges 29 bps in fees.

iShares Morningstar Small-Cap Growth ETF JKK— Up 21.3%

The underlying Morningstar Small Growth Index measures the performance of stocks issued by small-cap companies. The 245-stock fund charges 30 bps in fees. No stock accounts for more than 1.22% of the fund. The fund is heavy on Information Technology and Health Care sectors.

Vanguard Small-Cap Growth Index Fund ETF Shares VBK — Up 20.7%

The underlying CRSP U.S. Small Cap Growth Index measures the investment return of small-capitalization growth stocks. The 626-stock fund charges 7 bps in fees. Industrials, Health Care, Technology, Financials and Consumer Services have double-digit weights in the fund. No stock makes up more than 0.7% of the fund.

Invesco S&P SmallCap Materials ETF PSCM — Up 20.4%

The underlying S&P SmallCap 600 Capped Materials Index is comprised of common stocks of U.S. basic materials companies. These are companies that are principally engaged in the business of producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals. It charges 29 bps in fees (read: 5 Small-Cap ETFs & Stocks Beating Russell 2000).

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Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports
 
Invesco S&P SmallCap Materials ETF (PSCM): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
 
iShares Morningstar Small-Cap Growth ETF (JKK): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
MFAM Small-Cap Growth ETF (MFMS): ETF Research Reports
 
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