Small ETFs Outperforming Broader Markets

Some of the best things come in small packages. Exchange traded fund investors can find great momentum picks among products with lower assets under management, but you also have to be aware of the potential risks.

So far this year, 33 of the 50 best performing ETFs are funds that started 2013 with less than $100 million in assets under management, reports Eric Balchunas for Bloomberg. The smaller ETFs attracted $1.2 billion in new assets this year while the 17 larger ETFs saw $3.8 billion in inflows.

Potential investors, though, should be aware that smaller funds come with some risks, such as wider bid/ask spreads – price on buy or sell orders may be spread out. Still, investors can take better control over trades through limit orders, instead of a market order, when executing a trade on any ETF.

Moreover, smaller ETFs may not garner enough traction, forcing the fund sponsor to shutter the offering. If the ETF closes, investors are notified within at least 30 days in advance. Investors can then sell the ETF or hold on until the day of liquidation and receive a cash equivalent to assets at the time of sale. [Why ETFs Close]

Balchunas points out several small ETFs that have gained over 30% and crossed over the $100 million in assets marker year-to-date.

  • Guggenheim Spin-Off ETF (NYSEArca: CSD). The ETF tracks corporate spinoffs, or new businesses/divisions created from a parent company, in their growth phase between six months and thirty months after spinning off. Consequently, CSD tilts toward small- and mid-cap stocks. The fund has ballooned to $280 million in assets from $67 million. CSD is up 31.4% year-to-date.
  • PowerShares Dynamic Media Portfolio (NYSEArca: PBS). The ETF follows media companies like Time Warner, CBS, LinkedIn and Yahoo, and weights offerings based on fundamentals, like earnings and price momentum. Assets have increased to $226 million from $86 million. PBS is up 34.0% year-to-date.
  • DB X-Trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP). This ETF provides investors with access to Japanese equities while hedging against a depreciating yen currency. Assets have surged to $157 million from $5 million. DBJP is up 30.5% year-to-date. [WisdomTree: Japanese Large Caps Diverge from Small Caps]
  • PowerShares DWA SmallCap Technical Leaders Portfolio (NYSEArca: DWAS). The fund follows 200 small-cap stocks selected based on their relative performance strength. This enhanced indexing strategy has outperformed the Russell 2000 by 10% in the last year. Assets have increased to $302 million from $13 million. DWAS is up 34.2% year-to-date. [A Look at Small-Cap ETFs Outclassing the S&P 500]
  • iShares U.S. Insurance ETF (NYSEArca: IAK). Insurance companies have been outperforming the broader financial sector so far this year, and the rising interest rate environment could help boost insurance revenue. Assets rose to $152 million from $81 million. IAK is up 29.5% year-to-date. [Why S&P Likes Insurance ETFs]

For more information on ETFs, visit our ETF performance reports category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.