The Top 3 Small Cap ETFs

Small cap stocks have started to rise. Here are 3 ETFs that can help you take advantage of the resurgence.

In recent weeks, small cap stocks and ETFs are on the rise after falling behind large caps in the past two years.

Analysts expected better results for small caps to start the year after a strong quarter in 2023. Many predicted that the market would expand beyond large caps in 2019 and small caps would outperform them in 2024. During the first half of this year, large caps continued dominating.

The Russell 2000 has risen 9.5% year-to-date while the S&P500 is up 16.6%. Recently, however, the Russell 2000 outperformed. It rose 6% last week, and another 3.4% this past week. The resurgence may be a blip or simply delayed from what many analysts believed would happen this year.

Small caps have also historically performed well during presidential election years. Lincoln Financial recently released a study that showed small caps outperformed large caps during 7 of the 11 presidential election years. They also outperformed large caps the year following the election. This could be a great opportunity for investors.

ETFs are a great way to invest in small cap stocks. Here are three top small cap ETFs you should consider.

1. Invesco S&P SmallCap Momentum Fund

The Invesco SmallCap Momentum Fund (NYSEARCA : XSMO) was one of the top performing small cap ETFs in the past year. It has a return of 36% over the past year as of July 16, and is up 17% so far this year.

This is a concentrated small cap growth index tracking ETF that tracks the S&P SmallCap 600 Momentum Index. The ETF includes 120 stocks from the S&P SmallCap600 that have the highest momentum scores or upward price movement relative to other stocks in the index. The fund will include the stocks that have the highest upside at any given moment. The fund should perform well because there is a lot growth momentum at the moment.

Abercrombie & Fitch, Insight Enterprises and Fabrinet are the top three holdings.

2. Invesco S&P SmallCap Momentum ETF

This is another Invesco small cap ETF. However, the asset manager has a great selection of ETFs. The Invesco SmallCap Value with Momentum Fund (NYSEARCA:XSVM), one of the top long-term small-cap performers, has a five-year average annualized return of 16,2%. This is the best of its class. It has also returned 6.5% year-to-date and has a return of 21.9% for the past 12 months as of July 16

This ETF tracks S&P 600 High Momentum Value Index which is composed 120 stocks from the S&P SmallCap 600 Index that have the highest value scores as well as momentum scores. It includes stocks with low valuations and also upward price momentum. Stocks are weighed in the portfolio based on their value scores.

After a few years of lagged returns, small caps are undervalued. This fund is attractive as it includes value stocks that are moving.

The three largest holdings of the ETF are Kelly Services, Kohls and Par Pacific Holdings.

3. Principal U.S. small cap ETF

The Principal U.S. small cap ETF has also been one the best long-term funds in its class, with a five year annualized return of 12,1% as of 16 July. It has also returned 22.6% in the past year, and is up 14.3% for the year to date.

This ETF has been actively managed for the past one, three and five years and has outperformed the Russell 2000 benchmark. Christopher Ibach, Aaron Siebel and their team look for high-quality small caps with good values and strong momentum. They also avoid fundamentally stressed companies.

This ETF offers professional management that can make the necessary adjustments as the markets change. Portfolio managers have a combined 49 years’ experience in portfolio management.

The portfolio consists of 500 stocks. It is therefore well-diversified within the universe of small caps. The top three holdings include Lantheus Holdings, Jackson Financial (NYSE JXN), and Super Micro Computer.

These three ETFs are all complementary, offering growth, value and a more actively managed, broadly diversified strategy. All three would make good additions to any portfolio, especially now that small caps are on the rise.

This site is intended for entertainment only and does NOT offer financial advice.

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