“Earnings estimate revisions have been strongest in the small-cap sector. Forward earnings estimates for the S&P SmallCap 600 Index have risen by more than 28% compared to 18.7% for the S&P 500 Index over the past six months,” according to Invesco.
DWAS holds 200 stocks and allocates over 30% of its weight to healthcare names. The financial services and industrial sectors combine for over 34% of the ETF’s roster.
Importantly, small-cap valuations are not stretched, a potentially positive sign for an asset class that often trades at a premium to large-caps.
“Some see better value in small caps as the price-to-earnings (P/E) ratio has compressed on the S&P SmallCap 600 Index, suggesting that small caps have cheapened in recent years. On a forward earnings basis, the S&P SmallCap 600 Index is currently trading at 20.1 compared to 17.0 for the S&P 500 Index. The ratio of 1.18 is down from a peak of over 1.33 in July 2009,” according to Invesco data.
Meanwhile, the iShares Russell 2000 ETF (NYSEArca: IWM), which tracks the benchmark Russell 2000 Index, is up more than 6% over the past month, outperforming major large-cap indexes along the way.
For more information on small-capitalization stocks, visit our small-cap category.