Exchange traded funds that invest in small-cap stocks have fallen through their 50-day moving average in this week’s selling, breaching a key technical level. However, they rallied back from a similar setback in March.

The $16 billion iShares Russell 2000 (NYSEArca: IWM), an ETF tracking a popular index of U.S. small caps, traded lower Tuesday.

Small-cap stocks have led the way during the rally from the March 2009 bottom. In fact, U.S. small-cap stocks “have outperformed over the past 10 years, providing an annualized return of 9.2%, easily outpacing the large-cap equity returns of 2.7%” Morningstar says in a recent profile of iShares Russell 2000.

However, the outperformance of small-cap ETFs over the past decade is “unsustainable” and they now look expensive relative to large-cap benchmarks such as the S&P 500, the investment researcher said. [Are Small-Cap ETFs Overheating?]

The small-cap ETF is trailing the S&P 500 this year by a slight margin. Other ETFs for the category include Vanguard Small-Cap ETF (NYSEArca: VB) and iShares S&P SmallCap 600 (NYSEArca: IJR).

iShares Russell 2000

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