4 Smart Beta Small-Cap ETFs to Limit Potential Drawdowns

“Bottom line: U.S. small caps have impressed recently, but have become relatively expensive and vulnerable to any tax reform disappointment. Rather than size, we believe investors are better served focusing on equity style factors with potentially greater staying power in a sustained above-trend expansion, particularly momentum and value,” according to BlackRock.

For example, the iShares Edge MSCI Multifactor USA Small-Cap ETF (NYSEArca: SMLF) focuses on small-cap companies that are screened for value, quality, momentum and low size. Additionally, the iShares Edge MSCI Min Vol USA Small-Cap ETF (BATS: SMMV) holds small-cap equities that have lower volatility characteristics relative to the broader equities market. Due to their indexing methodologies, the two ETFs exhibit greater small-cap value tilts.

The PowerShares DWA SmallCap Momentum Portfolio (NasdaqGM: DWAS) follows the popular Dorsey, Wright & Associates proprietary selection methodology that is designed to identify small-cap firms with positive relative strength characteristics in an attempt to follow companies with strong forward momentum.

Additionally, the Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ) follows a revenue weighting methodology, which could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.

For more information on small-capitalization stocks, visit our small-cap category.