ETFs
Best Small Cap ETFs in June 2024
Are you looking for the next big thing in the stock market? It may be hiding among small caps, as these smaller companies often remain overlooked by investors. A way of gain exposure to the entire market segment is to buy a small cap ETF.
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What is a small cap ETF?
A small capitalization ETFs is an exchange-traded fund that invests in the smallest companies in the market through what are called small-cap or small-cap stocks. Small-cap ETFs give you an easy way to buy the small-cap “haystack” rather than chasing the best performers.
Small-cap stocks may look small, but they’re usually not that small. The total value of all their outstanding shares is typically between a few hundred million dollars and a few billion dollars. However, this is not much for the stock market, where the market capitalization can reach a trillion dollars.
Investors like small caps because they can offer higher potential returns than large-cap stocks, which are typically represented by the S&P 500 Index. However, because they are smaller and have fewer financial resources, they are also often riskier and more volatile.
Because of these risks, investing in small, individual stocks is best left to more advanced investors. But even new investors can buy a basket of these companies through a small-cap ETF and take advantage of the potentially higher returns of smaller, undiscovered stocks.
The Best Performing Small Cap ETFs
Bankrate selected its best funds based on the following criteria:
- US funds that appear in ETF.com’s small cap filter
- Funds among the best performing over the last five years
- Performance measured as of May 31, 2024 using the most recent figures from ETF.com.
Invesco S&P SmallCap 600 Income ETF (RWJ)
This ETF is based on the S&P SmallCap 600 Revenue-Weighted Index, which reweights stocks in the S&P SmallCap 600 Index based on a company’s revenue.
- Performance since the start of 2024: -1.2 percent
- Historical performance (annual over 5 years): 16.7 percent
- Expense rate: 0.39 percent
Pacer US Small Cap Cash Cows 100 ETF (CAV)
This ETF includes the top 100 stocks in the S&P SmallCap 600 based on their free cash flow yield.
- Performance since the start of 2024: -5.0 percent
- Historical performance (annual over 5 years): 16.7 percent
- Expense rate: 0.59 percent
Invesco S&P SmallCap Value with Momentum ETF (XSVM)
This ETF tracks the S&P 600 High Momentum Value Index, which is comprised of 120 stocks with the highest scores in terms of momentum and value factors.
- Performance since the start of 2024: -0.1 percent
- Historical performance (annual over 5 years): 15.8 percent
- Expense rate: 0.36 percent
Invesco S&P SmallCap 600 Pure Value ETF (RZV)
This fund is based on the S&P SmallCap 600 Pure Value Index, which selects stocks that perform well on value, using metrics such as price-to-earnings ratio and book-to-price ratio.
- Performance since the start of 2024: -4.2 percent
- Historical performance (annual over 5 years): 12.9 percent
- Expense rate: 0.35 percent
Invesco S&P SmallCap Momentum ETF (XSMO)
This ETF is based on the S&P SmallCap 600 Momentum Index, which includes 120 stocks from the S&P SmallCap 600 Index with the highest “momentum scores.”
- Performance since the start of 2024: 7.5 percent
- Historical performance (annual over 5 years): 12.3 percent
- Expense rate: 0.39 percent
Invesco Dorsey Wright SmallCap Momentum ETF (DWAS)
This ETF is based on stocks in the Dorsey Wright SmallCap Technical Leaders Index, which includes stocks with strong momentum.
- Performance since the start of 2024: 4.1 percent
- Historical performance (annual over 5 years): 12.3 percent
- Expense rate: 0.60 percent
ALPS O’Shares US Small Cap Quality Dividend ETF (OUSM)
This ETF tracks the performance of the O’Shares US Small-Cap Quality Dividend Index, which includes stocks with low volatility, dividend growth, and high-quality fundamentals.
- Performance since the start of 2024: 4.8 percent
- Historical performance (annual over 5 years): 11.8 percent
- Expense rate: 0.48 percent
Are small cap ETFs a good investment?
Investing in small-cap ETFs can offer attractive returns provided they are purchased at reasonable prices, but there are some drawbacks to be aware of.
Small-cap ETFs allow you to buy a diversified small business portfolio at a relatively low cost. They also won’t require the extensive research that investing in individual companies requires and can be quickly added to your overall portfolio to build exposure to the small-cap universe. Small caps can generate high returns as they grow into larger businesses. Many of today’s most successful companies started with a small cap.
But one of the downsides of investing in small-cap ETFs is that as top-performing companies grow, they are no longer considered small-cap and many funds are forced to sell them. to stay in line with their investment objectives. You also won’t benefit from the broad diversification offered by other funds. So, if an economic development has a negative impact on the small cap universe, you will not be protected. Small-cap funds also tend to be more volatile than funds that hold larger, more established companies.
(You can also consult our list of best large cap ETFs And best mid cap ETFs.)
Conclusion
Small-cap ETFs are an attractive, low-cost way to invest in some of the fastest-growing companies on the market, without the same risks of buying individual stocks. But like all investments in the stock market, they are not without risks and other disadvantages.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Furthermore, investors are advised that past performance of investment products is not a guarantee of future price appreciation.