Exchange traded funds that invest in U.S. small-cap and microcap stocks got a boost Monday from rallies in Timberland (NYSE: TBL), Graham Packaging (NYSE: GRM), Ness Technologies (NasdaqGS: NSTC), M&F Worldwide (NYSE: MFW) and other undersized companies.
Vanguard Small Cap ETF (NYSEArca: VB) and iShares Russell Microcap (NYSEArca: IWC) were little changed Monday afternoon and lagged large-cap stock indexes despite big rallies in some individual names.
Timberland soared more than 40% after VF Corp. (NYSE: VFC) announced a $2 billion deal for the small-cap retailer. [M&A Deals Lift Stock ETFs]
Graham Packaging vaulted almost 20% after the firm said it has gotten an unsolicited takeover bid from a third party.
Ness Technologies shares jumped following news the technology company is being acquired by Citi Venture Capital International.
M&F Worldwide shares rallied more than 40% after its largest shareholder offered to buy the firm for nearly $500 million.
Also Monday, Boingo Wireless (NasdaqGM: WIFI) added 24% following reports Deutsche Bank started coverage of the stock with a buy rating.
The small-cap ETF’s performance in 2011 is on par with the S&P 500, but the microcap fund is in negative territory to lag blue-chip stocks.
Because of their high volatility, “only the steeliest investors should overweight this segment of the market” while the historical return premium of microcaps reliably shows up only over decades, Morningstar analyst Samuel Lee writes in his take on the ETF.
“Microcap stocks are highly volatile because their issuing companies are less diversified, less well-run, and often highly speculative ventures; they go bankrupt far more often than big companies and are highly sensitive to economic conditions,” he said. “Over several years-long stretches, they’ve lost a lot of money and stayed down.”
iShares Russell Microcap
