Examining Today’s Big Russell 2000 Small Cap Sell-Off (IWM)

Something is wrong with Small-Caps today, as we are witnessing a vicious sell-off in the indexes and related funds.

Benchmark ETFs there such as IWM (iShares Russell 2000, Expense Ratio 0.20%, $35 billion in AUM) and IJR (iShares Core S&P Small Cap, Expense Ratio 0.07%, $31 billion in AUM) are experiencing their biggest downdrafts since mid-May today, and both funds have already clipped their 50 day MAs (we will watch them closely throughout the day to see what the market close looks like). Fund flows have not been kind to IWM year-to-date, as we have seen over $4.2 billion leave the fund in 2017 including greater than $2 billion just in the trailing one month period alone.

IJR interestingly has a much different look, with a bit over $4 million entering the fund via creation flows year-to-date, even with the most recent weakness in Small-Cap stock performance in the short term. Even in the dismal trailing one month period in terms of IWM’s fund flows, IJR has managed to capture over $720 million in new assets via creation, so it is certainly possible that for various reasons holders of IWM are migrating out of the product and into IJR in some cases.

This brings to light the fact that IJR has actually encroached on IWM’s market share to a noticeable degree thanks to the trend of recent flows, and being only $4 billion smaller in terms of AUM size it does have a reasonable chance of overcoming IWM at some point as the largest “Small-Cap Equity” fund in the U.S. listed universe.

Bear and Bear levered funds like TZA (Direxion Daily Small Cap Bear 3X, Expense Ratio 1.10%, $716 million in AUM), RWM (ProShares Short Russell 2000, Expense Ratio 0.95%, $331 million in AUM), and the much smaller SRTY (ProShares UltraPro Short Russell 2000, Expense Ratio 0.95%, $95 million in AUM) have to be on radars at this point because quite simply, we do not often see vicious moves like this in Small-Cap stocks terribly often. And if this move has legs, these funds could certainly be in vogue throughout the late summer and fall.

TZA has seen noticeable inflows year-to-date, with nearly $300 million entering the fund via inflows (noting its asset base of about $716 million) and trading volume on this latest swoon lower in Small-Caps has started to hit the fund (6.4 million shares of TZA traded today as of mid-day versus its 1-month trailing average of about 7.8 million shares).

IWM-2017-08-02

The iShares Russell 2000 Index ETF (NYSE:IWM) was trading at $140.12 per share on Wednesday afternoon, down $1.66 (-1.17%). Year-to-date, IWM has gained 4.66%, versus a 11.42% rise in the benchmark S&P 500 index during the same period.

IWM currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 36 ETFs in the Small Cap Blend ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.