An ETF to Capture Strength in Small-Cap Energy Stocks | ETF Trends

Small-capitalization stocks are breaking out with energy companies leading the charge. Investors interested in gaining targeted exposure to this small-cap segment can look to sector-specific exchange traded funds.

The Russell 2000 and S&P 600 Small-Cap indices are breaking into new record highs as energy shares led recent gains on the recent jump in oil prices, which analysts argue should boost earnings forecasts for the sector, Reuters reports.

For instance, the PowerShares S&P Smallcap Energy Portfolio (NSYEArca: PSCE), which is based on the S&P SmallCap 600 Capped Energy Index, increased 18.4% year-to-date, compared to 7.7% rise in the SPDR S&P 600 Small Cap ETF (NYSEARCA:SLY).

The outperformance in small-caps has been fueled by the December U.S. tax reforms. The recent piece of legislation included corporate tax cuts that especially benefited smaller companies, which have suffered through higher rates than large-cap companies overall.

Moreover, the recent speculation of a trade war between the U.S. and China also supported the small-cap outlook compared to large multi-national companies as these smaller business are largely focus on the domestic economy. The stronger U.S. economic growth outlook has also supported the domestically focused small-cap play.