Adding to small-caps’ struggles are high valuations.
“Neither large nor small cap U.S. stocks are cheap, but small caps look particularly pricey. The Russell 2000 was already expensive last December; at nearly 48x trailing earnings it is even more so today,” said BlackRock.
A smart beta alternative to IJR and IWM is the Guggenheim S&P Smallcap 600 Pure Value ETF (NYSEArca: RZV), which has a heavily cyclical lineup. RZV targets companies that exhibit the value characteristic but focuses on the smaller companies taken from the S&P SmallCap 600 benchmark. Industrial, consumer discretionary and materials stocks combine for 57% of that ETF’s weight.
Another idea to consider is the the Schwab Fundamental U.S. Small Company ETF (NYSEArca: FNDA). FNDA, which launched in 2013, tracks the performance of the Russell Fundamental U.S. Small Company Index, which includes the bottom companies that weight below 87.5% from the Russell 3000 Index.
Tom Lydon’s clients owns shares of IWM.