ETF Trends
ETF Trends

Exchange traded funds focusing on U.S. small-caps have been decent though somewhat disappointing performers this year, but the same cannot be said of some small-cap sector ETFs. For instance, the PowerShares S&P SmallCap Information Technology Portfolio (NASDAQ: PSCT) is higher by nearly 13% year-to-date.

That showing is notably better than ETFs following the Russell 2000 Index or the S&P SmallCap 600 Index. PSCT tracks the S&P SmallCap 600 Capped Information Technology Index. While the various sector-specific ETFs provide broad exposure to their targeted segments, investors should keep in mind that there are differences in the different ETF offerings.

“The Index is designed to measure the overall performance of common stocks of US information technology companies. These companies are principally engaged in the business of providing information technology-related products and services, including computer hardware and software, Internet, electronics and semiconductors and communication technologies,” according to PowerShares, the fourth-largest U.S. ETF issuer.

The technology sector continues to grow through innovation as more shift to cloud, progress into artificial intelligence and adopt internet of all things devices.

“The success of technology stocks generally shows through in the PowerShares ETF’s performance. With average annual returns that are more than 3.5 percentage points higher than the already impressive gains for the large-cap focused SPDR Technology ETF, small-cap stocks have delivered on the idea that being willing to take greater risks for greater reward can pay off,” according to the Motley Fool.

PSCT’s 87 holdings have an average market capitalization of $1.78 billion, putting the ETF at the higher end of the small-cap spectrum. None of the ETF’s holdings command more than 3.94% of the fund’s weight.

PSCT features exposure to seven technology industry groups with electronic equipment and components makers and semiconductor-related firms combining for 53% of the fund’s weight.

“Worldwide semiconductor revenue is forecast to total $401.4 billion in 2017, an increase of 16.8 percent from 2016,” according to Gartner, Inc. “This will be the first time semiconductor revenue has surpassed $400 billion. The market reached the $300 billion milestone seven years ago, in 2010, and surpassed $200 billion in 2000.”

Related: U.S. Stock ETFs Trip as Tech Sector Plunges

Semiconductor ETFs have recently been durable performers as semiconductor stocks are rebounding to steady the broader technology sector, but that does not mean the gains are over for this suddenly hot group. However, valuations are rising for chip stocks.

“Large-cap stocks appeal to many investors because they’ve already proven their success. If you want the best returns available, though, small-cap stocks are where you need to look, especially in the technology industry,” notes Motley Fool.

For more news and strategy on the Technology market, visit our Technology category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.