Small-capitalization stocks and Small-Cap ETFs have attracted a lot of interest in recent months as investors tried to limit the negative effects of heightened trade war concerns, but the popular play may come with risks.

The iShares Core S&P Small-Cap ETF (NYSEArca: IJR), which tracks the S&P Small-Cap 600 Index and the second largest small-cap related ETF, was among the most popular ETF plays of 2018, bringing in close to $4.0 billion in net inflows year-to-date.

Over $4 billion has found its way into small-cap ETFs and mutual funds in May and June alone while U.S. stock funds as a whole experienced billions of dollars in outflows every month this year, reports Danielle Chemtob for the Wall Street Journal.

Small Caps & Tariffs

While small-caps have outperformed and continued to attract investment interest, some analysts warned that the strong corporate earnings and economic data could conceal tariff’s potential negative impact on small businesses.

For instance, at least half a dozen small, domestically focused companies, including motor-home manufacturer Winnebago Industries Inc., lighting firm Acuity Brands Inc. and agricultural machinery maker Art’s Way Manufacturing Co., have warned that recent tariffs on steel and aluminum, among a number of other Chinese goods, threaten to disrupt their businesses.

“Right now, all this is muted because the U.S. economy happens to be growing very strongly,” Mary Lovely of the Peterson Institute for International Economics told the WSJ. “Longer out, this is going to affect consumer spending and more importantly it’s going to affect investment in the U.S.”

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