Small cap is a term used to classify companies with relatively small market capitalization, or market value of its outstanding shares. The definition of small cap can vary among brokerages, but according to Investopedia, it is generally a company with a market capitalization of between US$300 million and $2 billion.
As a general rule, small cap companies provide investors with more room for growth but also typically contain a greater risk profile and volatility than large cap companies. A large cap offering, which has a market capitalization of $10 billion or higher is usually a longer term play, but does offer a bit more stability.
For those investors looking for that growth, but are willing to take on a bit more risk in their portfolios, here are 11 of the top-performing small-cap ETFs for 2019.
Managed by Charly Travers, who has served as a portfolio manager at Motley Fool Asset Management since 2014, Motley Fool Small-Cap Growth ETF. focuses on identifying companies that have opportunities to reinvest their profits and earn high returns on capital. He has experience analyzing companies in a wide range of industries. Investment selections are based on bottom-up, business-focused research, where Travers aims to invest in companies that have the potential to generate high rates of return for long periods of time. It has an expense ratio of 0.85%
The Vanguard Small Cap Growth ETF (VBK) seeks to track the performance of the CRSP US Small Cap Growth Index, which measures the investment return of small-capitalization growth stocks. The ETF provides a convenient way to match the performance of a diversified group of small growth companies. The fund follows a passively managed, full-replication approach, thus the expense ratio is very low at 0.07%.
JSML aims to pick outperformers from the small-cap universe by selecting stocks with strong growth fundamentals (measured by ROIC, revenue growth, profit margin expansion, operating profit growth, and EPS growth). “Smart beta” funds already blur the line between passive and active management, but JSML goes a step further by relying on an active manager to determine its sector weighting; the portfolio is weighted to align by sector with the Janus Venture Fund, an actively-managed traditional mutual fund with a small-cap growth mandate. Individual holdings are market cap-weighted within sectors, and the portfolio is rebalanced quarterly. Launched in February 2016, JSML charges one of the steepest fees in the small-cap growth segment, and an expense ratio of 0.35%.
The iShares Morningstar Small-Cap Growth ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities that exhibit growth characteristics. Investors gain exposure to small public U.S. companies whose earnings are expected to grow at an above-average rate relative to the market. The fund offers targeted access to a specific category of small-cap domestic stocks. It can be used to diversify a U.S. stock allocation and to tilt your portfolio towards growth stocks. The expense ratio is 0.30%.
The Invesco Russell 2000 Pure Growth ETF (the “Fund”) is based on the Russell 2000®Pure Growth Index (the “Index”). The Fund will invest at least 90% of its total assets in the component securities that comprise the Index. The Index is composed of securities with strong growth characteristics selected from the Russell 2000® Index. Securities are weighted based on their style score. The Fund and the Index are rebalanced and reconstituted annually. The expense ratio is high at 0.39%
The Invesco S&P SmallCap Information Technology ETF (Fund) is based on the S&P SmallCap 600® Capped Information Technology Index (Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Index is designed to measure the overall performance of the securities of US information technology companies. These companies are principally engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies.
The Index is a subset of the S&P SmallCap 600® Index, which is a float-adjusted, market-capitalization-weighted index reflecting the US small-cap market. The Fund and the Index are rebalanced and reconstituted quarterly, and has an expense ratio of 0.29%.
The fund employs a passive management (or “indexing”) approach, investing primarily in small-capitalization U.S. equity securities that satisfy certain environmental, social and governance (“ESG”) criteria. The fund seeks to track the investments results, before fees and expenses, of the TIAA ESG USA Small-Cap Index, which is primarily composed of equity securities issued by small- capitalization companies listed on U.S. exchanges. The Index uses a rules-based methodology that seeks to provide investment exposure that generally replicates that of small-cap benchmarks through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria. The Index is rebalanced on a quarterly basis. It is not possible to invest directly in an index. The expense ratio is high at 0.40%.
The Invesco S&P SmallCap Industrials ETF (Fund) is based on the S&P SmallCap 600®Capped Industrials Index (Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Index is designed to measure the overall performance of the securities of US industrial companies. These companies are principally engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing.
The Index is a subset of the S&P SmallCap 600® Index, which is a float-adjusted, market-capitalization-weighted index reflecting the US small-cap market. The Fund and the Index are rebalanced and reconstituted quarterly, with an expense ratio of 0.29% like some of its siblings.
The iShares ESG MSCI USA Small-Cap ETF seeks to track the investment results of an optimized index designed to produce investment results comparable to a capitalization weighted index of small-capitalization U.S. companies, while reflecting a higher allocation to those companies with favorable environmental, social and governance (“ESG”) profiles (as determined by the index provider). The fund aims to obtain exposure to higher rated environmental, social, and governance (ESG) companies while accessing small-cap U.S. stocks. The ETF also seeks a similar risk and return to the MSCI USA Small Cap Index while achieving a more sustainable outcome. It has a low expense ratio of 0.17%.
The Invesco RAFITM Strategic US Small Company ETF (the “Fund”) is based on the Invesco Strategic US Small Company Index (the “Index”). The Fund will normally invest at least 80% of its total assets in securities that comprise the Index. The Index is designed to measure the performance of high quality, small-sized US companies. The eligible equity securities are assigned a business-size score based on the equally-weighted average of sales, operating cash flow, total return of capital and book value over the prior five years or life of the security. For real estate securities, operating cash flow is replaced by funds from operations and book value is replaced by total assets. The securities are then assigned a quality score based on the equally-weighted average of efficiency (ratio of sales-to-assets in the prior year) and growth (percentage change in ratio of sales-to-assets over the prior five years or life of the security). Finally, each eligible security is ranked in descending order by its Business-Size score. For inclusion in the index, securities ranked in the top 90% by Business-Size score are eligible and, of those 80% with the highest Quality score. Securities in the Index are weighted based on their float-adjusted Business-Size scores. The Fund and the Index are reconstituted annually. It has a reasonable expense ratio of 0.23%
The Vanguard Russell 2000 Growth ETF (VTWG) Invests in stocks in the Russell 2000 Growth Index, a broadly diversified index predominantly made up of growth stocks of small U.S. companies. The fun seeks to closely track the index’s return, which is considered a gauge of small-cap growth U.S. stock returns. It offers high potential for investment growth; share value typically rises and falls more sharply than that of funds holding bonds. Vanguard feels the ETF is more appropriate for long-term goals where your money’s growth is essential.
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