Small Caps, Value, or Both? 'IJS' Capitalizing On Two Hot Trends

Up 33% for the year, the iShares S&P Small-Cap 600 Value ETF (IJS) is showcasing advantages in two investing categories: small cap equities and value.

IJS seeks to track the investment results of the S&P SmallCap 600 Value IndexTM, which measures the performance of the small-capitalization value sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.

It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index.

IJS features:

  1. Exposure to U.S. small cap stocks that are thought to be undervalued by the market relative to similar firms
  2. Low cost and tax efficiency
  3. Use as a complement to a portfolio’s core holdings
  4. A low expense ratio of 0.18%

IJS Chart

The Value-Added Small Cap Tilt

In combining two market forces that are both seeing upside, it’s easy to see why IJS is experiencing strength. This is especially so when looking at two broad market indexes like the MSCI ACWI Small Cap and MSCI ACWI Value indexes.

Both indexes are up so far this year with the former up 11.51% while the latter is up 8%. While small cap equities are rallying, value is making a comeback as investors are beginning to rotate out of the growth-fueled investments that powered much the last decade’s bull run.

“The investment thesis behind small caps is that these firms are likely to provide strong growth prospects to a portfolio and should have a much easier time growing then their large cap counterparts,” ETF Database analysis said. “However, these securities are extremely volatile and can experience large losses or gains in a very short period of time.”

“Despite their volatility, these products should probably be in every investors’ portfolio as they tend to move somewhat independently of large caps and can be a better ‘pure play’ on the American economy,” the analysis added. “This particular ETF, since it focuses on value securities, has certain biases in its portfolio holdings and may not offer as much of a cross section as funds such as IWM.”


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