In April of 2010, exchange traded fund provider Invesco PowerShares launched a suite of small cap sector based equity ETFs in light of the enormous investor appetite for large cap sector funds including those from State Street Global Advisors, iShares, First Trust, Vanguard and other issuers.
The funds that are currently available to investors in this space are PSCD (S&P Small Cap Consumer Discretionary), PSCC (S&P Small Cap Consumer Staples), PSCE (Energy), PSCF (Financials), PSCH (Healthcare), PSCI (Industrials), PSCT (Information Technology), PSCM (Materials) and PSCU (Utilities).
With tactical sector rotation a popular strategy among managers of ETF portfolios, the idea that one can manage a portfolio of small cap driven sector ETFs in a similar manner as large caps, has started to catch on in the marketplace with more than a year of live performance history now in these ETFs.
Each PowerShares small cap sector ETF is based on an S&P 600 Small Cap sector index, much like the large cap Select Sector Spyders from SSGA track S&P 500 Large Cap sector indices. The idea behind these small cap offerings is that while they likely pose more risk and higher levels of volatility than their large cap counterparts, since small caps have demonstrated superior returns over time when compared to large caps, the longer term rewards from an investment standpoint will be greater.
For example, the best performing small cap sector ETF year to date, PSCH (PowerShares S&P Small Cap Healthcare) has registered a 4.92% return versus XLV (SPDR Healthcare Select) which is up 3.29%.
The second best small cap performer, PSCU (PowerShares S&P Small Cap Utilities) is up 1.60% year to date, but is trailing large cap utilities, as XLU (SPDR Utilities Select) has gained 8.00% year to date.