There was some evidence of hedging Monday via near term options in Small-Caps, via puts in IWM (iShares Russell 2000, Expense Ratio 0.28%)
With Small Caps right around all-time highs on this most recent leg up, at this time of year it likely makes sense for institutional portfolio managers to lock in profits via hedged downside on underlying long positions or tilts in a portfolio using options strategies like this.
IWM’s 2013 break-out has seen non-household names like PCYC, OCN, GWR, and DDD reach lofty heights.
Even with the recent broad-based pullback off of the highs, IWM still sits only 1.1% below its alltime high and the fund itself has been trading heavier than average volume in recent sessions (ADV is 32.5 million).
Portfolio managers whom have been long small-caps in 2013 have been rewarded handsomely in terms of out-performance versus the Large Cap S&P 500 by an impressive margin YTD, as well as in the trailing one year period.
Rolling back this measure out to a trailing five year period includes a time period of notable small-cap underperformance and suggests that the current out-performance among such names is fundamentally due, or expected given economic and market conditions, etc.
How has strong performance in the Small-Caps space benefitted asset growth in this area of the market? IWM has pulled in an impressive $6.7 billion YTD making its total asset base $28 billion and the fund averages a massive 31 million shares traded daily.
iShares seems to have a stranglehold on the top end of this market in terms of assets under management, as the next largest fund in the category IJR (iShares Core S&P Small Cap, Expense Ratio 0.16%) holds $12.3 billion in AUM.
The next largest fund is a Vanguard product, VB (Vanguard Small Cap, Expense Ratio 0.10%) which currently has $8.1 billion in AUM, and then followed by two more iShares funds IWO (iShares Russell 2000 Growth, Expense Ratio 0.25%) and IWN (iShares Russell 2000 Value, Expense Ratio 0.25%) which have $5.75 and $5.74 billion in AUM respectively.
In fact, there are ten additional small cap equity focused ETFs in the universe all above $1 billion in assets under management.
To us, that’s a pretty simple message, institutional portfolio managers as well as retail investors and financial advisors love to index the Small-Cap equity segments of their portfolios and they love the broad array of products and depth available in the space.
Fund sponsors outside of iShares and Vanguard, including WisdomTree with DGS (WisdomTree Emerging Markets Small Cap Dividend, Expense Ratio 0.64%) and Schwab with SCHA (Schwab U.S. Small Cap Fund, Expense Ratio 0.10%) also have had nice success in the space in terms of raising assets, as both of these funds have north of $1.5 billion in AUM currently.
With a broad array of investment choices that range from straight market-cap weighted approaches, to revenue weighting, to dividend weighting, equal weighting, and fundamental/quantitatively driven strategies for example, there is no reason to believe that ETF asset growth in Small Caps will not continue.
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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