In 2016, the Russell 2000 Index of small-capitalization stocks gained 21% with value-oriented, defensive stocks taking charge in a year that witnessed growing uncertainty around the Brexit vote in the U.K. leading into June and uncertainty surrounding the U.S. presidential election leading into November, according to a FTSE Russell note.
However, U.S. small-caps have made a 180 turn this year, with the Russell 2000 and the iShares Russell 2000 ETF (NYSEArca:IWM), which reflects the benchmark Russell 2000 Index, both up around 6.0% so far this year, with growth-oriented, dynamically driven companies leading the charge.
“As evidenced by their abrupt shift in performance drivers in 2017, US small cap stocks are a very sensitive asset class and closely reflect shifting economic and political environments. This is why it is important for investors to have a high quality range of index tools allow them to properly measure and plan before investing in this critical asset class,” Ron Bundy, CEO of North America Benchmarks, FTSE Russell, said in a note.
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The ongoing shift for the U.S. small-cap equity market may reinforce the need for the highest quality tools for investors seeking to pursue market opportunities while managing downside risk.
For instance, the Schwab Fundamental U.S. Small Company ETF (NYSEArca:FNDA) offers broad exposure to small-cap U.S. stocks but weights them on fundamental measures of size, including sales, retained operating cash flow, and dividends plus share buybacks, rather than market cap.
The Deutsche X-trackers Russell 2000 Comprehensive Factor ETF (NYSEArca:DESC) select small-cap components based on a broad set of five factors, including quality, value, momentum, low volatility and size.
Additionally, the JPMorgan Diversified Return U.S. Small Cap Equity ETF (NYSEArca:JPSE) tries to reflect the performance of the Russell 2000 Diversified Factor Index, which is comprised of small-cap equity securities in the U.S. selected based on a rules-based proprietary multi-factor selection process that screens for relative valuation, momentum and quality. Stocks are also weighted to diversify risk across individual equity securities.
For more information on small-capitalization stocks, visit our small-cap category.