Small-cap exchange-traded funds (ETFs) are designed to invest in a basket of stocks with relatively small market capitalizations. A small-cap company is generally one whose market value is somewhere between $300 million and $2 billion. However, small-cap ETFs are not necessarily restricted to that range, as evidenced by some of the holdings of the ETFs outlined below. Because of their size, small-cap stocks have strong, albeit often volatile, growth potential. A small-cap ETF can reduce the volatility associated with individual stocks while offering investors greater diversification.

Key Takeaways

  • The small-cap sector underperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are SILJ, SGDJ, and JKK.
  • The top holdings of these ETFs are Pan American Silver Corp., Greatland Gold PLC, and Match Group Inc., respectively.

There are about 37 distinct ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The small-cap sector, as measured by the Russell 2000 Index, has underperformed the broader market with a total return of 4.9% over the past 12 months compared to the S&P 500's total return of 16.3%, as of November 6, 2020. The best-performing small-cap ETF, based on performance over the past year, is the ETFMG Prime Junior Silver ETF (SILJ). We examine the top 3 best small-cap ETFs below. All numbers below are as of November 9, 2020.

ETFMG Prime Junior Silver ETF (SILJ)

  • Performance over 1-Year: 59.8%
  • Expense Ratio: 0.69%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 1,220,912
  • Assets Under Management: $493.0 million
  • Inception Date: November 29, 2012
  • Issuer: ETF Managers Group

SILJ tracks the ISE Junior Silver (Small Cap Miners/Explorers) Index, which is designed to provide direct exposure to small-cap companies that mine, explore, and refine silver. About 94% of the fund's holdings are based in Canada and the U.S., with another 5% based in the U.K. The ETF's top three holdings are Pan American Silver Corp. (PAAS:TSE), a Canada-based mineral exploration, production, and refining company; Hecla Mining Co. (HL), a silver and gold producer; and First Majestic Silver Corp. (FR:TSE), a Canada-based mineral exploration and production company.

Sprott Junior Gold Miners ETF (SGDJ)

  • Performance over 1-Year: 59.7%
  • Expense Ratio: 0.57%
  • Annual Dividend Yield: 0.45%
  • 3-Month Average Daily Volume: 26,980
  • Assets Under Management: $114.6 million
  • Inception Date: March 31, 2015
  • Issuer: Sprott Asset Management

SGDJ tracks the Solactive Junior Gold Miners Custom Factors Index, which is designed to identify junior gold stocks with market caps primarily between $200 million and $2 billion. The index emphasizes junior gold producers with strong revenue growth and junior exploration companies with strong stock price momentum. About 47% of the fund's 39 holdings are based in Canada, while 17% and 15% are based in Australia and the U.S., respectively. Small-cap stocks comprise about 88% of the fund's holdings with the remaining 12% allocated to medium caps. The fund's top three holdings include Greatland Gold PLC (GGP:LON), a mineral exploration company focused on gold projects; PT Aneka Tambang Tbk (ANTM:JKT), an Indonesia-based mining and metals company; and K92 Mining Inc. (KNT:TSX), a Canada-based mineral exploration and development company.

iShares Morningstar Small-Cap Growth ETF (JKK)

  • Performance over 1-Year: 32.2%
  • Expense Ratio: 0.30%
  • Annual Dividend Yield: 0.18%
  • 3-Month Average Daily Volume: 16,711
  • Assets Under Management: $476.9 million
  • Inception Date: July 7, 2004
  • Issuer: iShares

JKK tracks the Morningstar Small Growth Index, which is designed to measure the performance of small-cap stocks that have historically exhibited above-average growth characteristics. The fund focuses on investing in growth stocks throughout the U.S. The ETF holds about 225 securities and does not assign any single security more than 1.2% of its total assets, making it a well-diversified small-cap fund. The fund's largest exposures are to the information technology sector and the healthcare sector, with 28% of holdings allocated to the former and 25% allocated to the latter. Its top three holdings are Match Group Inc. (MTCH), an online dating service company; class A shares of Datadog Inc. (DDOG), a provider of software solutions, including data analytics and cloud-based monitoring; and Enphase Energy Inc. (ENPH), a manufacturer of solar power solutions.