For investors optimistic that small-cap stocks will keep rebounding, three top-performing ETFs provide exposure to small cap equities as the benchmark Russell 2000 Index has jumped 12% from its September low.
They are the Horizon Kinetics Inflation Beneficiaries ETF, ProShares S&P MidCap 400 Dividend Aristocrats ETF, and iShares MSCI Brazil Small-Cap ETF, which focus on small-cap stocks. Small cap companies get a large share of their profits from their domestic economies, in this case the U.S. and Brazil, and are less vulnerable to currency swings that can affect companies with large international sales.
- The three top-performing small-cap ETFs, as ranked by one-year total return, are the Horizon Kinetics Inflation Beneficiaries fund, the ProShares S&P MidCap 400 Dividend Aristocrats fund, and the iShares MSCI Brazil Small-Cap fund.
- Each of these funds has outperformed the broader market and the small-cap Russell 2000 Index in the last year.
- The top holdings of these ETFs are Texas Pacific Land Corp., RenaissanceRe Holdings Ltd., and Sendas Distribuidora SA, respectively.
There are 50 small-cap ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as ETFs with less than $50 million in assets under management (AUM). While small-cap stocks are defined as companies with market values ranging from $300 million to $2 billion, ETFs are not restricted to companies in that market value range.
The three top ETFs have outperformed the 27% plunge in the Russell 2000 Index and the 19% drop in the S&P 500 in the past year as of Nov. 9. We examine these three funds below. All data below are as of Nov. 10, 2022, except where indicated.
Horizon Kinetics Inflation Beneficiaries ETF (INFL)
- Performance over one year: 4.0%
- Expense ratio: 0.85%
- Annual dividend yield: 0.50%
- Three-month average daily volume: 213,750
- AUM: $1.3 billion
- Inception Date: Jan. 11, 2021
- Issuer: Horizon Kinetics LLC
INFL is an actively managed ETF that aims to provide long-term growth of capital in real terms. Real returns, as opposed to nominal returns, are inflation-adjusted returns. To achieve those returns, the fund invests in stocks of companies that are expected to benefit from rising prices of real assets, such as commodities. The revenue of these companies is expected to grow along with inflation, while their expenses are expected to remain relatively steady. The ETF is focused primarily on small-cap growth stocks.
Its top three holdings as of Nov. 14, 2022, are Texas Pacific Land Corp. (TPL), an owner of land in Texas that earns income from land sales, oil and gas royalties, grazing leases, and interest; Viper Energy Partners LP (VNOM), a developer of oil and natural gas properties in North America; and Archer Daniels Midland Co. (ADM), an agricultural origination and processing company.
ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL)
- Performance over one year: 2.6%
- Expense ratio: 0.40%
- Annual dividend yield: 2.41%
- Three-month average daily volume: 109,958
- AUM: $1.4 billion
- Inception date: Feb. 3, 2015
- Issuer: ProShares
REGL targets the S&P MidCap 400 Dividend Aristocrats Index, which focuses on companies that have a history of growing dividends for at least 15 years. Financials, industrials, and utilities stocks make up the three largest portions of the portfolio and comprise over two-thirds of invested assets. Though the fund is labeled as a mid-cap ETF, it owns a large share of small-cap stocks using a blended strategy.
The top holdings of REGL include RenaissanceRe Holdings Ltd. (RNR), a provider of insurance and reinsurance products; SEI Investments Co. (SEIC), an investment processing and management company; and Ryder Systems Inc. (R), a global logistics and transportation operator.
iShares MSCI Brazil Small-Cap ETF (EWZS)
- Performance over one year: -13.1%
- Expense ratio: 0.57%
- Annual dividend yield: 2.28%
- Three-month average daily volume: 60,388
- AUM: $89.5 million
- Inception date: Sept. 28, 2010
- Issuer: BlackRock Financial Management
EWZS offers target exposure to the small-cap portion of Brazil's equities market by tracking the MSCI Brazil Small Cap Index. Utilities stocks make up the largest part of the portfolio, followed by consumer discretionary and consumer staples companies.
The top holdings of EWZS include Sendas Distribuidora SA (ASAI3:BSP), a grocery store and consumer goods company; Eneva S.A. (ENEV3:BSP), a power generation company; and Embraer S.A. (EMBR3:BSP), a maker of commercial, military, and agricultural aircraft.
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