“From 1926 to 2010 they’ve earned about 3% annualized over large caps, a return bonus usually called the ‘size premium.’ Investors expect excess return from them because micro-cap stocks are often frail, opaque, and speculative,” Lee added.
Microcap ETFs include:
- First Trust Dow Jones Select MicroCap ETF (NYSEArca: FDM)
- Guggenheim Wilshire Micro-Cap ETF (NYSEArca: WMCR)
- iShares Russell Microcap Index Fund (NYSEArca: IWC)
- Powershares Zacks Micro Cap Portfolio Fund (NYSEArca: PZI)
It should be noted that ETFs are only as liquid as their underlying assets. Micro-capitalization companies tend to trade at low volumes, which may often move prices against the funds when the ETFs initiate buy or sell positions in their stock constituents, leading to inefficient pricing. [What is an ETF? — Part 13: True Liquidity]
For more information on micro-capitalization market, visit our micro-cap category.
Max Chen contributed to this article.