Markets are trading at multi-year highs with the S&P 500 hitting a new high seemingly each passing day. An improving labor market, rebounding auto sales and rising consumer confidence are some of the factors leading the market higher.
While the broad market indices like the S&P 500 and the DJIA are up around 4% in the past one month, small cap benchmarks, like the Russell 2000, have easily out beaten the larger counterparts and are up around 8%.
In fact, the top small cap ETF in terms of assets – iShares Russell 2000 Index Fund (NYSEARCA:IWM) – has added 9.3% in the past month, as compared to a 6% gain for the top large cap ETF SPDR S&P 500 (SPY) and 7.3% gain for the top mid cap ETF Core S&P Mid-Cap ETF (IJH).
With things gradually improving on the domestic front, smaller companies are picking up faster than their larger counterparts. Small cap companies usually focus more on the domestic segment as compared to larger companies which tend to have more international exposure.
The outperformance by small caps not only symbolizes increasing demand for such stocks, but also a growing risk appetite among investors. This shows that small caps are the major drivers of this broad market rally and might continue to perform well at least in the short run (read: 3 Foreign Small Cap ETFs Likely to Outperform).
Small Caps ETF in Focus
Though IWM is certainly the most popular choice in this space, below we have highlighted three ETFs that have added around 10% in the past one month and could make for an interesting addition for investors seeking more small cap exposure at this time.
PowerShares S&P SmallCap Consumer Discretionary Portfolio (NASDAQ:PSCD)
PSCD is a compelling choice for investors looking for a targeted bet in the small cap space. The fund tracks the S&P SmallCap 600 Capped Consumer Discretionary Index, giving investors exposure to U.S. consumer discretionary companies.
The fund holds a basket of 101 stocks and is relatively cheaper, charging investors 29 basis points as annual fees. The top three holdings of the fund are Kate Spade & Co (4.15%), Live Nation Entertainment Inc (2.93%) and Lumber Liquidators Holdings Inc. (2.60%).
In terms of performance, the fund did pretty well last year and added around 37%. Also, the fund is up 9.4% in the past one month. The trend is expected to continue at least in the short run given that the fund has a favorable Zacks ETF Rank #1 or Strong Buy.
PowerShares DWA SmallCap Momentum Portfolio (NYSEARCA:DWAS)
DWAS provides investors with a broader exposure to small cap stocks. The ETF tracks the Dorsey Wright SmallCap Technical Leaders Index and manages an asset base of $690.3 million. The index uses a proprietary selection methodology to select companies that demonstrate powerful relative strength characteristics.