Why Is The iShares Russell 2000 Index ETF (IWM) Underperforming So Badly?

From Zacks: U.S. small-caps have been continuously lagging their large-cap counterparts this year. Although small-cap stocks have had a disappointing earnings season, large-cap stocks have been gaining on strong earnings, currency effects and higher growth prospects, internationally. Small-cap stocks on the other hand are more domestically focused.

The largest small-cap ETF tracking the Russell 2000 index, iShares Russell 2000 ETF is up 0.05% so far this year, while the SPDR S&P 500 ETF is up around 11%.

The primary reason for this underperformance can be accounted to uncertainty around the implementation of President Donald Trump’s proposed tax cuts and deregulation.

Trump’s failure to pass the Healthcare bill has raised concerns amongst investors about his ability to pass the tax reform. Tax cuts will be highly beneficial to small-caps as they are not subject to different tax regimes owing to their domestic focus and thus end up paying higher taxes (read: 2 Steady Sector ETFs Amid August’s Market Crash).

The U.S. economy faces high geopolitical risks owing to rising tensions with North Korea. Adding to the agony, Trump’s reaction to the Charlottesville protests invited widespread criticism from his critics as he said that both sides were to blame for the violence.

Let us now discuss a few ETFs focused on providing exposure to U.S. small-cap equities (read: Bet on Momentum with These ETFs & Stocks).

iShares Russell 2000 ETF (IWM – Free Report)

This fund seeks to provide exposure to small cap U.S. companies and tracks the Russell 2000 index.

It has AUM of $34.36 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Financials, Information Technology and Health Care with 18%, 17.08% and 15.09% allocation, respectively (as of August 17, 2017). The fund’s top three holdings are Kite Pharma Inc (KITE – Free Report) , Grubhub Inc (GRUB – Free Report) and Gramercy Property REIT Trust (GPT – Free Report) with 0.33%, 0.25% and 0.24% allocation, respectively (as of August 17, 2017). The fund has returned 9.5% in the last one year and 0.05% year to date (as of August 18, 2017). It currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Core S&P Small-Cap ETF (IJR – Free Report)

This fund is one of the most popular ETFs traded in the U.S. markets. It seeks to provide exposure to small cap companies.

It has AUM of $29.91 billion and charges a fee of 7 basis points a year. From a sector look, the fund has high exposures to Industrials, Financials and Consumer Discretionary with 18.76%, 16.03% and 15.59% allocation, respectively (as of August 17, 2017). The fund’s top three holdings are MKS Instruments Inc (MKSI – Free Report) , Allete Inc (ALE – Free Report) and Healthcare Services Inc (HCSG – Free Report) with 0.63%, 0.55% and 0.54% allocation, respectively (as of August 17, 2017). The fund has returned 8.94% in the last one year but has lost 2.31% year to date (as of August 18, 2017). It currently has a Zacks ETF Rank #3 with a Medium risk outlook.

Vanguard Small-Cap ETF (VB – Free Report)

This fund seeks to provide exposure to small cap U.S. companies and tracks the CRSP US Small Cap Index.

It has AUM of $18.43 billion and charges a fee of 6 basis points a year. From a sector look, the fund has high exposures to Financials, Industrials and Technology with 26.3%, 20% and 11.7% allocation, respectively (as of July 31, 2017). The fund’s top three holdings are CBOE Holdings Inc. (CBOE – Free Report) , Cadence Design Systems Inc. (CDNS – Free Report) and Packaging Corp. of America (PKG – Free Report) with 0.3% allocation each (as of July 31, 2017). The fund has returned 7.74% in the last one year and 2.23% year to date (as of August 18, 2017). It currently has a Zacks ETF Rank #3 with a Medium risk outlook.

The iShares Russell 2000 Index ETF (NYSE:IWM) rose $0.34 (+0.25%) in premarket trading Tuesday. Year-to-date, IWM has gained 0.71%, versus a 9.67% rise in the benchmark S&P 500 index during the same period.

IWM currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #6 of 36 ETFs in the Small Cap Blend ETFs category.


This article is brought to you courtesy of Zacks Research.