Investing in micro-cap stocks demands a higher degree of risk tolerance than investing in small-cap stocks because risk increases with lower market capitalization. One reason for this higher risk is the thin trading volume for micro-cap stocks, making it difficult to sell shares at the desired price within a reasonable time. Volatility increases with lower market capitalization. Micro-cap stocks have less than $300 million in market capitalization, compared to low-volatility large-cap stocks with market capitalizations in excess of $10 billion.

IShares Micro-Cap ETF

The iShares Micro-Cap ETF (NYSEARCA: IWC) is the largest micro-cap ETF. The fund had total net assets of more than $683 million as of March 25, 2016. This ETF tracks the performance of the Russell Microcap Index by using a market capitalization weighting methodology. This ETF has an average daily trading volume of approximately 77,000 shares. Its trading volume provides reasonable liquidity for a sector comprised of individual stocks with thin trading volume.

The iShares Micro-Cap ETF has a high expense ratio of 0.60%. The average ETF expense ratio is 0.44%. Financial sector stocks account for 30.69% of the 1,434 holdings for this ETF, health care sector stocks account for 17.69% of its holdings and information technology stocks make up 15.23% of the holdings. The 10 largest holdings of this ETF are small-cap stocks, and each of the top eight holdings has a market capitalization exceeding $1 billion.

First Trust Dow Jones Select MicroCap Index Fund

With total net assets of approximately $47 million as of March 25, 2016, the First Trust Dow Jones Select MicroCap Index Fund (NYSEARCA: FDM) was the second-largest micro-cap ETF. It tracks the performance of the Dow Jones Select MicroCap Index.

The rules of the Dow Jones Select MicroCap Index assign component weights according to market capitalization, trading volume and the following financial indicators: trailing price-to-earnings (P/E) ratio, trailing price/sales ratio, per-share profit change for the previous quarter, operations profit margin and six-month total return. The largest holding of this ETF, with 3.06% of the portfolio weight, is Chimera Investment Corporation (NYSE: CIM). Chimera is actually a mid-cap stock, with a market capitalization of $2.6 billion. The remaining assets in the top 10 holdings of this ETF are small-cap stocks.

The First Trust Dow Jones Select MicroCap Index Fund experiences a thin, average daily trading volume of 4,633 shares. This ETF has a high 0.60% expense ratio. Financial sector stocks account for 36.15% of the 263 holdings of this ET, industrial sector stocks account for 17.16% of its holdings and consumer discretionary stocks make up 16.41% of the holdings. Health care sector stocks comprised 4.21% of the ETF's weight.

PowerShares Zacks Micro Cap Portfolio

The third-largest micro-cap ETF is the PowerShares Zacks Micro Cap Portfolio (NYSEARCA: PZI). This fund had total net assets of approximately $23 million as of March 25, 2016. This ETF tracks the performance of the Zacks Micro Cap Index, encompassing a group of micro-cap stocks with the greatest potential to outperform passive benchmark micro-cap indexes and other actively managed U.S. micro-cap strategies. However, the top four holdings of this ETF are small-cap stocks.

The PowerShares Zacks Micro Cap Portfolio presents another example of extremely thin trading volume. It experiences an average daily trading volume of 5,629 shares. This ETF has a hefty expense ratio of 0.94%. The financial sector represents the most-significant allocation of this ETF's weight. Financial sector stocks account for 46.95% of the 400 holdings of the fund's portfolio, while information technology stocks account for 11.39% of its weight and industrial sector stocks make up 9.93% of the holdings. Consumer discretionary sector stocks accounted for 9.88% of the fund's portfolio weight.

Wilshire Micro-Cap ETF

The Wilshire Micro-Cap ETF (NYSEARCA: WMCR) was the fourth-largest micro-cap ETF, with total net assets of approximately $21 million as of March 25, 2016. This fund tracks the performance of the Wilshire U.S. Micro-Cap Index. The index rules base weighting on market capitalization, trading volume, institutional holdings and conversion rules for companies with multiple share classes.

Concerns about liquidity would drive many investors away from the Wilshire Micro-Cap ETF. It experiences an extraordinarily thin average daily trading volume of 1,719 shares. This ETF has an expense ratio of 0.50%. Of its 797 holdings, financial sector stocks account for the greatest portion, representing 34.79% of the ETF weigh, health care sector stocks account for 20.76% of its holdings, and consumer discretionary sector stocks account for 12.28% of the ETF's weight. Information technology stocks make up 11.68% of the ETF's weight. Although this is supposed to be a micro-cap ETF, its 10 largest holdings are small-cap stocks.