A Look at Small-Cap ETFs Outclassing the S&P 500

The S&P 500 is up a very respectable 20% so far this year but U.S. small-cap ETFs are outperforming in a sign that investors are comfortable taking on more risk.

“Small-cap stocks have been on fire this year, with the Russell 2000 Index of small-cap stocks returning 24.0% through July compared with 19.6% for the S&P 500 Index,” says Morningstar ETF analyst Michael Rawson. “Small caps make up less than 15% of the U.S. equity market, but over the long term, small-cap stocks have outperformed large-cap stocks.”

There are many ETFs to choose from that track U.S. small-cap companies, but Rawson notes that more than 90% of the assets under management are concentrated in four funds: iShares Russell 2000 Index (NYSEArca: IWM),  iShares Core S&P Small-Cap ETF (NYSEArca: IJR),  Vanguard Small Cap ETF (NYSEArca: VB) and  Schwab U.S. Small-Cap ETF (NYSEArca: SCHA). [U.S. Small-Cap ETFs Running on Fumes?]

“These funds are fairly similar, offering diversified, market-cap-weighted exposure to small-cap stocks at low expense ratios. But each follows a different index and each has features that make them appealing to different investors,” the analyst wrote in a commentary posted Friday.

Charts source: Morningstar

Full disclosure: Tom Lydon’s clients own IWM and SCHA.

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