Small-cap stocks and exchange traded funds have recently taken some abuse in the press and, more importantly in the markets themselves.
Although it is not residing near all-time highs as the Dow Jones Industrial Average and S&P 500 are, the iShares Russell 2000 ETF (NYSEArca: IWM) is poised to end May with a gain of better than 1%, a gain that belies the mostly negative commentary applied to small-caps in recent weeks. [Small-Cap ETF Riddle]
At the sector level, small-cap health care are showing signs of life. Over the past month, the PowerShares S&P SmallCap Health Care Portfolio (NasdaqGM: PSCH) is up 3.2%. That compares with gains of 1.9% and 2.9%, respectively for IWM and the Vanguard Health Care ETF (NYSEArca: VHT).
“What we’ve seen is a move back above both 200-day and 50-day moving averages over the past two weeks. However, the real story resides in the relative performance of the chart. That trend has been reversed to the upside, which suggests that investors are finally moving money to this group at the expense of other areas of the market,” Michael Kahn of Barron’s says of PSCH.
Although the combination of small-caps and health care often prompts investors to think of high risk-high reward biotechnology stocks, PSCH does not feature a large weight to biotech. Health care services providers and equipment suppliers combine for nearly 62% of the ETF’s weight, according to PowerShares data.
PSCH’s exposure to services providers is proving useful at a time when that industry’s stocks are among the best performers in the broader health care space. [A Healthy Obamacare ETF]
Of PSCH’s top-10 holdings, a group that combines for about 36% of the ETF’s weight, only two stocks have traded lower over the past month. Of the eight that have risen, four have posted double-digit gains.
PSCH tracks the S&P SmallCap 600Capped Health Care Index, which has easily outperformed the S&P SmallCap 600 Index over the past year and three years, according to PowerShares data. The $165.4 million ETF charges 0.29% per year.
PowerShares S&P SmallCap Health Care Portfolio
Tom Lydon’s clients own shares of IWM.