Posted on 22 July 2011.
Investing in small-caps is a double-edged sword, but it doesn’t have to be with small-cap ETF. Buying an individual stock with the small-cap designation can be equal parts profitable and perilous. For every winner an investor happens upon in the small-cap universe, there’s a good chance several more losers will follow, so why not let small-cap ETFs do the legwork for you?
Small-caps get a bum wrap because some investors confuse the asset class with penny stocks when, in fact, these are two entirely different investment concepts. Penny stocks, while not all bad, are not for the faint of heart and are usually intended to be short-term instruments. On the other hand, small-cap stocks can have market values of up to $2 billion and many are already listed on a major exchanges. Still, parsing through this universe can be tricky, making small-cap ETFs a sound bet for investors looking to gain exposure to this universe.
In terms of U.S. stocks, conservative investors would do well to cozy up to the PowerShares S&P SmallCap Consumer Staples ETF (Nasdaq: PSCC). Familiar names such as Casey’s General Stores (Nasdaq: CASY) and Boston Beer (NYSE: SAM) help PSCC provide a more compelling twist on the often boring consumer staples sector.
For the slightly more adventurous investor or those in need of energy exposure, the PowerShares S&P SmallCap Energy ETF (Nasdaq: PSCE) is the way to go. As a small-cap ETF, PSCE stays far away from big oil, but the ETF is still levered to rising oil prices and is littered with potential takeover targets.
Investors looking for international exposure will find plenty of options in the small-cap ETF arena. In fact, the number of country-specific small-cap ETFs has soared over the past couple of years as ETF sponsors have funds to market that track both developed and emerging markets.
For those looking for developed markets exposure, the newly minted Market Vectors Germany Small-Cap ETF (NYSE: GERJ), the IQ Canada Small Cap ETF (NYSE: CNDA) and the SPDR Russell/Nomura Small-Cap ETF (NYSE: JSC) fit the bill.
When it comes to emerging markets, small-cap ETFs just keep sprouting up. The Guggenheim China Small-Cap ETF (NYSE: HAO) and the Market Vectors Brazil Small-Cap ETF (NYSE: BRF) are among the dominant names in this asset class and the Market Vectors Russia Small-Cap ETF (NYSE: RSXJ) is one of the new members of the crew. Investors looking for multi-country exposure and the power of dividends should take a look at the WisdomTree Emerging Markets SmallCap Dividend ETF (NYSE: DGS).
Either way, there is no shortage of global options in the small-cap ETF universe.
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