Departing Small Caps

In spite of a recent short term spike in prices, sentiment at least via ETFs and related flows appears bearish for U.S. Small Cap stocks.

Last week, as reported in many different places, the marketplace saw larger selling pressure (and subsequent redemptions) in both IWM (iShares Russell 2000, Expense Ratio 0.24%) and UWM (ProShares Ultra Russell 2000, Expense Ratio 0.95%) as part of a tactical strategy re-balance, and this week we have seen additional and noteworthy action in the space.

Once again involving Small Cap leveraged products, we saw inflows in TZA (Direxion Daily Small Cap Bear 3X, Expense Ratio 0.95%) to the tune of >$200 million and outflows in TNA (Direxion Daily Small Cap Bull 3X, Expense Ratio 0.95%), >$300 million there, and this flow is pretty consistent with what we continue to see in the space.

Despite the recent run up in Small Caps over the last six trading sessions or so, the Russell 2000 Index itself is still nearly 6% below its intraday high reached in early March, and if not for the >5% rally lately, the picture would look even more ugly. Year to date, IWM has now seen more than $3.6 billion leave the fund via redemptions, but the fund is still a giant with >$24 billion in AUM, and the largest U.S. Small Cap Equity focused ETF in the space.

It has a notable AUM edge over IJR (iShares Core S&P Small Cap, Expense Ratio 0.17%) which has approximately $13.5 billion in assets under management while VB (Vanguard Small Cap, Expense Ratio 0.10%) has accumulated $8.7 billion in AUM.

IJR as its name states tracks an S&P Index, the S&P Small Cap 600 while VB tracks a rather newly introduced index, the CRSP U.S. Small Cap Index. Both funds have had more success than say IWM year to date in terms of attracting asset flows, with VB pulling in >$400 million in new assets YTD and IJR “only” losing about $570 million.