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Small-Caps Rule in August: Top-Performing ETFs

Zacks Investment Research

Overruling the historical trend, the U.S. market has put up a good show so far in the month of August. In fact, a consensus carried out from 1950 to 2017 shows that August has offered positive stock returns in 37 years and negative in 31, per moneychimp.com, the average negative return being 0.27%.

But three key ETFs, SPDR S&P 500 ETF (NYSEARCA:SPY), SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) and Invesco QQQ Trust (NASDAQ:QQQ) added 2.2%, 1.4% and 2.7% in the past month (as of Aug 24). The funds started August on a decent note, nosedived in mid-August only to spring back later in the month.

A key finding was the revival of the small-cap segment in August with iShares Russell 2000 ETF (NYSEARCA:IWM) adding about 3.8% past month. Despite a weaker dollar, small caps surprisingly bounced back from mid-August with the Russell 2000 currently trading at a record high.

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Investors should note that the Fed is on track to raise rates faster as long as the U.S. economy continues to do well. Small-cap stocks are likely to do better in a rising rate environment since these are tied more to domestic activities and are thus not hurt in a rising dollar environment (which is a likely outcome).

Economic wellbeing in the domestic land is a major positive for small-cap stocks. The reading of the U.S. GDP for the second quarter of 2018 advanced at a 4.1% annual rate of growth (the best clip in nearly four years), higher than 2.2% expansion in the previous period and in line with market expectations.

The labor market is steady and retail sales have been in great shape in the United States. The tax reform is yet another boon for U.S. stocks. Corporate earnings have been in great shape as well.


Against this backdrop, let’s take a look at a few small-cap ETFs that are among the maximum gainers in the past month (as of Aug 24, 2018).

Janus Henderson Small Cap Growth Alpha ETF (NASDAQ:JSML) – Up 9.2%

The underlying Janus Small Cap Growth Alpha Index picks small-sized capitalization stocks by evaluating each company’s performance in three criteria: growth, profitability and capital efficiency. The fund charges 50 bps in fees and has a Zacks ETF Rank #1 (Strong Buy).

Oppenheimer S&P SmallCap 600 Revenue ETF (NYSEARCA:RWJ) – Up 6.2%

The underlying S&P SmallCap 600 Revenue-Weighted Index is constructed using a rules-based methodology that re-weights the constituent securities of the S&P SmallCap 600 Index according to the revenue earned by the companies in the parent index. The fund charges 39 bps in fees and has a Zacks ETF Rank #3 (Hold).

SPDR S&P 600 Small Cap Growth ETF (NYSEARCA:SLYG) – Up 5.4%

The underlying S&P SmallCap 600 Growth Index measures the performance of the small-capitalization growth sector in the U.S. equity market. The fund charges 15 bps in fees. The fund has a Zacks ETF Rank #1.

iShares S&P Small-Cap 600 Growth ETF (NASDAQ:IJT) – Up 5.4%

The underlying S&P SmallCap 600 Growth Index measures the performance of the small-capitalization growth sector of the U.S. equity market. The fund charges 25 bps in fees. The fund has a Zacks ETF Rank #1.

Vanguard S&P Small-Cap 600 Growth ETF (NYSEARCA:VIOG) – Up 5.3%

The S&P SmallCap 600 Growth Index looks to track the growth companies of the S&P SmallCap 600 Index. The fund charges 20 bps in fees and has a Zacks ETF Rank #1.

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