As a new year is upon us, more investors will be looking at small cap ETFs. Those joining them can do so with the Invesco PureBeta MSCI USA Small Cap ETF (PBSM) and the Invesco RAFI Strategic US Small Company ETF (IUSS).

“A new survey of professional investors in the United States, UK and Germany, reveals 80% think small and micro-caps are a good investment opportunity in the current market, and therefore three quarters (76%) believe investors should increase their exposure here over the next six to 12 months,” an AP press release noted. “Of them, over half (54%) think investors should increase their allocation to small and micro caps ‘slightly’, whereas 22% say there should be a ‘significant’ shift. Comparatively, just 2% of those surveyed believe investors should decrease their exposure to small and micro caps.”

“The findings are from MBH Corporation plc, which began trading on the OTCQX® Best Market last Friday 18th December,” the release added. “The diversified investment holding company, also listed on the Frankfurt and Dusseldorf Stock Exchanges, acquires successful, well established small to medium sized enterprises across multiple geographies and sectors.”

As for the funds:

  • PBSM seeks to track the investment results of the MSCI USA Small Cap Index, which is designed to measure the performance of the small-capitalization segment of the U.S. equity market. The fund comes in with a low expense ratio of 0.06%.
  • IUSS seeks to track the investment results of the Invesco Strategic US Small Company Index. It employs a “full replication” methodology in seeking to track the index, meaning that the fund generally invests in all of the securities comprising the index in proportion to their weightings in the index. The index is designed to measure the performance of equity securities issued by higher quality, small-business-sized companies designated as U.S. companies. IUSS’s expense ratio is 0.23%.

Small Caps Outdoing Their Larger Brethren

The excitement over small caps is certainly justified. When looking at a small cap index like the Russell 2000, it’s up 19% this year, as opposed to the 15% gains in the larger S&P 500.

^RUT Chart

“This year, micro-cap indices have been outperforming mid and large cap indices, a trend that 71% of the 117 professional investors surveyed believe will continue over the next six months,” the press release added. “In fact, their low correlation with large caps performance is one of the key aspects driving the increase in appetite for micro caps, with 73% of investors citing this as an increasingly attractive feature.”

“We have seen first-hand, within our own portfolio, how smaller businesses have been able to successfully and profitably ride the storm of 2020,” said Callum Laing, CEO of MBH Corporation plc.We’re pleased that our research shows an increasing number of professional investors recognising the potential of small and micro-cap stocks.”

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