Small-cap exchange traded funds are now trailing the S&P 500 after falling harder than the blue-chip index in the recent sell-off.
The small-cap iShares Russell 2000 (NYSEArca: IWM) was up 6.6% year to date as of Tuesday’s close, compared with a gain of 8.7% for the S&P 500, according to Morningstar.
Other small-cap ETFs include iShares S&P SmallCap 600 (NYSEArca: IJR) and Vanguard Small Cap ETF (NYSEArca: VB).
Smaller stocks often lead market rallies, although the asset class is more volatile than more established, large-cap names.
“Small-cap stocks tend to be more volatile due to narrower economic moats and a greater sensitivity to macroeconomic risks,” says Morningstar analyst Michael Rawson in a report on IWM.
The fund has an expense ratio of 0.26%. The average market cap of a stock in the small-cap fund is about $1 billion, compared with $50 billion for the S&P 500.
“Relative to U.S. large caps, this ETF has large weightings in business services and financials, while providing less exposure to the energy or media sectors,” Rawson said.
One reason for the lagging performance of small-cap ETFs so far in 2012 is strength in tech giant Apple (NasdaqGS: AAPL) and big banks such as JP Morgan Chase (NYSEArca: JPM), writes Brendan Conway at Barron’s.
The iShares Russell 2000 Index Fund “actually did what it was expected to do” during a bull rally such as the first quarter, he said. “And if you think that stocks can rise … that’s a recipe for small-caps to start beating the S&P 500 again.”
IWM hasn’t dropped below its 200-day exponential moving average in 2012.
iShares Russell 2000
