Exchange Traded Funds (ETFs)

Smaller is Better with This Small-Cap ETF

In life, bigger isn’t always better. A large side of fries always seems like a good idea until your stomach later rebels for indulging in an oversized portion.

Sometimes, smaller is better than bigger, and in the realm of investing, this holds true with small-cap stocks. Investors have found that there are several advantages for investing in small-cap stocks, including high growth potential and better long-term returns compared to large-cap stocks.

With so many small-cap stocks to choose from, however, it may be hard to decide where and how to crack into the small-cap-investing scene. To this end, many prefer to enter the market through small-cap focused exchange-traded funds (ETFs), giving them a diverse and more generalized starting point for entering this sector of the market.

One such ETF is the iShares Core S&P Small-Cap ETF (IJR), founded in 2000 as part of BlackRock’s Core ETFs. IJR is often used as a portfolio building block, since the fund tracks the S&P SmallCap 600 Index, a collection of 600 stocks selected by the S&P to represent roughly 3% of the publicly available market.

IJR’s holdings avoid most of the illiquid small-cap names, factoring into its overall strong liquidity. It has $66.40 billion assets under management, a price to earnings (P/E) ratio of 14.61 and a distribution yield of 1.61%.

In addition, 100% of IJR’s holdings are U.S. stocks. Otherwise, the fund offers a diverse portfolio. Plus, 22.78% of its holdings are in the finance sector, and IJR has a significant stake in manufacturing and consumer goods and services.

Another large part of the fund’s holdings is in various technology sectors, such as electronic technologies (9.39%), health technologies (6.91%) and technology services (6.62%). Top current holdings include SPS Commerce, Inc. (SPSC), Rambus Inc. (RMBS), Comfort Systems USA, Inc. (FIX), Axcelis Technologies, Inc (ACLS) and e.l.f. Beauty, Inc. (ELF).

Courtesy of stockcharts.com

As you can see from the chart above, IJR is currently trading above its 50- and 200-day moving averages. As of July 3, the fund is up 2.51% in the past week, 3.68% in the last month, 6.07% in the past three months, 6.71% year to date (YTD) and 9.29% in the last year. IJR has a modest expense ratio of just 0.06%.

While the stocks within this fund may be “small,” the decision to invest in them is anything but minor. Remember to consider your personal financial situation and goals before making any investment. Investors are always encouraged to do their due diligence before adding any stock or ETF to their portfolios.

I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.