Small-Cap ETFs' Time to Shine

Small capitalization stocks and category-related exchange traded funds are outperforming in the U.S. markets.

The S&P SmallCap 600 Index has outperformed the benchmark S&P 500 Index of large-cap companies by 9.5% from February through May, marking an outperformance at the three-month premium level last seen since May 2002, according to a S&P Dow Jones Indices note.

The SPDR S&P 600 Small Cap ETF (NYSEARCA:SLY), iShares Core S&P Small-Cap ETF (NYSEArca: IJR) and Vanguard S&P Small-Cap 600 ETF (NYSEArca: VIOO), which all track the S&P SmallCap 600 Index, have increased 10.4% over the past three months, whereas the S&P 500 gained 2.6%. Year-to-date, the small-cap ETFs were up 10.2%, compared to the S&P 500’s 3.6% gain.

All 11 small-cap GICS sectors advanced over May, the first time all 11 gained in a calendar month since December 2016. Among the leaders in May, health care increased 9.3%, information technology rose 7.9% and real estate added 7.9%.

A Great Time for Small-Caps

Jodie Gunzberg, Managing Director, Head of U.S. Equities, S&P Dow Jones Indices, pointed to a number of supporting factors that have helped small-caps outperform and may continue to bolster this market category ahead. Gunzberg argued that the small-cap category enjoyed healthy deal making, increased expectations for acquisition of smaller companies, stronger innovation of among health care small-caps.