Small-cap stocks and ETFs are attempting to shed their laggard status as highlighted by a batch of US-focused small-cap ETFs hitting all-time highs Wednesday.
That group included the PowerShares DWA SmallCap Momentum Portfolio (NasdaqGM: DWAS), which gained 3% on more than double the average daily volume.
DWAS, which is more than five years old, follows the popular Dorsey, Wright & Associates proprietary selection methodology that is designed to identify small-cap firms with positive relative strength characteristics in an attempt to follow companies with strong forward momentum. The ETF is now up 16% year-to-date, good for one of the best performances among U.S. small-cap ETFs.
Furthermore, small-cap stocks were strengthening as traders renewed their outlook on the Trump administration’s pro-growth agenda. In recent weeks, U.S. markets have been roiled over uncertainty concerning President Donald Trump’s ability to push through pro-growth economic policies through Congress as the White House wades through political intrigue. However, the small-cap segment is recovering on expectations that the administration could overhaul the U.S. tax policy.
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Small-caps, though, can still navigate through a slowly rising rate environment. Smaller companies, which focus on U.S. markets, are less exposed to a stronger U.S. dollar as rates rise, which would more negatively affect larger corporations with a global footprint. Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies.
DWAS holds almost 200 stocks with an average market capitalization of $1.5 billion. The ETF is heavily allocated to three sectors as healthcare, technology and financial services combine for nearly two-thirds of its weight. Industrial and consumer discretionary names combine for another 26.3%.
As a momentum-based strategy, it is not surprising that about 58% of DWAS’s holdings are considereed growth stocks. The remainder are split between small-cap blend and value names. Over the past year, DWAS has topped the Russell 2000 Index by about 250 basis points.
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