ETF Chart of the Day: Microcap Stocks
January 4th at 10:45am by Paul Weisbruch, Street One Financial
In the face of the recent strength in U.S. equities, Small Cap names have come back in focus given their “high beta” nature and potential to deliver “growth” to investment portfolio results albeit at higher risk than more established larger cap companies.
This said, an offshoot of the Small Cap space known as “Micro-Caps” will also likely hit radars if the recent equity market rally has legs in 2013. There are several ETFs that exist currently in the Micro-Cap space, with IWC (iShares Russell Microcap, Expense Ratio 0.71%) being the largest in terms of AUM with approximately $460 million under management.
FDM (First Trust DJ Select MicroCap, Expense Ratio 0.60%), PZI (PowerShares Zacks Micro Cap Portfolio, Expense Ratio 0.60%), and WMCR (Guggenheim Wilshire Micro Cap, Expense Ratio 0.50%) also are potential alternatives for those portfolio managers looking to obtain exposure to very small but publicly traded equities (market capitalizations typically below $50 million). [Small-Cap ETF Rises to All-Time High]
So in a nutshell, the holdings in these ETFs are hardly household names, in fact, many of these “micro” or “nano” cap stocks are names that most individual investors may have never heard of.
IWC’s top holdings currently appear as the following: Infinity Pharmaceuticals, 0.41%, Colony Financial Inc, 0.41%, Radian Group Inc., 0.34%, Sunrise Senior Living Inc., 0.33%, and Boulder Brands Inc., 0.32%.
It is also important to note that the individual equity components of these ETFs, being micro-cap stocks, generally have limited trading volume (and float in some cases) on a stock by stock basis, so liquidity, in terms of potential price impact, is a bigger concern here than it would be for say, an ETF tracking the S&P 500 Index. [Small-Cap ETF Rally Bolsters Bulls]
This being said, the fact that each of these ETFs generally has small weightings to each individual equity component, the net effect is that diversification is largely achieved and overall portfolio volatility over time, as well as in the short term would potentially be dampened with this “basket” effect.
Each aforementioned fund mentioned has a different index methodology and weighting system, so due diligence should be performed by the managers in order to isolate which specific exposure is appropriate for their desired goals.
iShares Russell Microcap
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at firstname.lastname@example.org.