Small caps have underperformed the broader market over the last decade. Large cap growth companies including Apple, Amazon, Microsoft, and Netflix have provided huge percentage returns during this same period.
The S&P 500’s blow off top in the fourth quarter of 2019 was led by large cap technology companies. RBC Capital Markets, Lori Calvasina said in a statement, ”There’s a solution for anyone concerned U.S. stock positioning is too exuberant: lean toward small caps.”
Small cap companies are fairly undervalued in comparison to their large cap counterparts. Calvasina wrote, “When we look at positioning in U.S. equities generally in the futures market, we continue to find that it is highly euphoric.” This highly euphoric sentiment has ”pushed large cap companies valuations above their long-term average, the highest since the tech bubble as of mid-January.”
IShares Russell 2000 ETF (5 Year Historical Chart)
SPDR S&P 600 Small Cap ETF (SLY)
(NYSEARCA: SLY) follows the S&P Small Cap 600 Index. SLY has a net expense ratio of 0.15. Over the last 5 years the S&P 600 has brought returns of 47%, while the Russell 2000 saw returns of about 40%. Investors looking for less risk exposure should consider SLY (INDEXSP: SLY) on it’s breakout to new highs. SLY has returned roughly 15% over the last year, and about 10% over the last 5 years.
Ishares MSCI EAFE Small Cap ETF (SCZ)
(NASDAQ: SCZ) follows the MSCI EAFE Small Cap Index. SCZ has a net expense ratio of 0.40. Investors looking for exposure in developed markets can look towards SCZ. (NASDAQ: SCZ) largest holdings are in Japan, including markets such as the U.K., Australia, Sweden and Germany. The ETF offers exposure to more than 2,300 small cap companies. SCZ has retuned roughly 25% over the last year, and about 9% over the last 5 years.
Vanguard Russell 2000 Growth ETF (VTWG)
(NASDAQ: VTWG) follows the Russell 2000 Small Cap Index. VTWG has a net expense ratio of 0.15. NTWG is largely exposed to the healthcare sector, which comprise 30% of its holdings. The bulk of NTWG’s holdings are exposed to technology, producer durables, and consumer discretionary’s; which comprise 45.7% of its holdings. NTWG has returned roughly 29% over the last year, 9% over the last 5 years, and about 13% since it’s inception in 2010.
About Russell 2000
The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It was started by the Frank Russell Company in 1984. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.