The case that can be made for larger corporations, however, cannot necessarily be made by smaller companies and the ETFs that purport to represent them. One of the most common methods for assessing the health of the broader U.S. picture is via the cumulative NYSE Advance/Decline (A/D) line. The popular indicator charts the the net number of NYSE stocks (advancers minus decliners) in a given day and adds it to a running total, offering technical analysts a way to visualize whether the overall market is healthy or not.
In the above chart, we see that the overall market is faltering, even as the Dow and the S&P 500 receive glorious accolades. Historically, the pattern has a habit of foreshadowing trouble. How is this playing itself out on the ETF landscape? An easy way to find out is to compare the PowerShares Small Cap Sector ETFs against the market-cap weighted SPDR Sector ETFs. The former perform better when risk-takers are rewarded the most, while the latter perform better when safety-seekers are moving away from smaller corporations.
| Safer Spiders Versus Riskier Equal-Weight ETFs? | ||||||
| 1 Month % | ||||||
| SPDR Select Health Care (XLV) | 3.6% | |||||
| PowerShares Small Cap Health (PSCH) | -0.9% | |||||
| SPDR Select Financials (XLF) | 3.4% | |||||
| PowerShares Small Cap Financials (PSCF) | 0.0% | |||||
| SPDR Select Technology (XLK) | 1.4% | |||||
| PowerShares Small Cap Technology (PSCC) | -0.8% | |||||
| SPDR Select Utilities (XLU) | 0.8% | |||||
| PowerShares Small Cap Utilities (PSCC) | -1.8% | |||||
| SPDR Select Industrials (XLI) | 0.5% | |||||
| PowerShares Small Cap Industrials (PSCI) | -0.2% | |||||
The bottom line? ETF enthusiasts may see their portfolios tread water if they choose a diversified path. Foreign equities, emergers and small caps have been struggling as of late. The primary winners – the Dow, the S&P 500 and Alibaba – are what they show us on CNBC.