U.S. small –caps have delivered stellar returns this year. The iShares Russell 2000 ETF (NYSEArca: IWM), the largest small-cap ETF by assets, is up 31.1% while the iShares Core S&P Small-Cap ETF (NYSEArca: IJR) is higher by 34.3%.
The returns offered by broader small-cap ETFs have been too compelling to ignore, but there are potentially big opportunities with small-caps at the sector level that investors should consider as well.
“S&P 600 Index constituents are projected to grow 22% in 2013 and 32% in 2014, respectively, according to Capital IQ consensus estimates, compared to 5.7% and 11% for members of the S&P 500 Index. However, not surprisingly, all small-cap sectors are not expected to grow equally in 2014, with Energy, Information Technology and Materials significantly leading earnings prospects of Financials, Telecom and Utilities,” according to a new research note from S&P Capital IQ.
Investors looking to take a more tactical approach to small-cap investing can do just that with the PowerShares lineup of nine sector ETFs, which debuted three and a half years ago as the small-cap counterparts to the sector SDRs ETFs made famous by State Street Global Advisors.
Some of the PowerShares small-cap plays have been sound performers this year. For example, the PowerShares S&P SmallCap Energy Portfolio (NasdaqGS: PSCE) is higher by 38.2% while the PowerShares S&P SmallCap Information Technology Portfolio (NasdaqGS: PSCT) is up 32%. [10 Small-Sector ETFs With Big Returns]
PSCT is the largest of the nine PowerShares small-cap sector funds with $207.4 million in assets, double what it had last year. PSCT “is well diversified at the industry level with 10% exposure to the Semiconductors, Internet Software & Services, Electronic Equipment & Instruments and Application Software industries. This and the other PowerShares ETFs have a modest 0.29% expense ratio, according to S&P Capital IQ. PCST also ranks favorably to S&P Capital IQ for its bullish technical trends, but this is offset by a number of holdings with below-average S&P Capital IQ Quality Rankings,” said S&P Capital IQ.