Tap Thousands of Investments with this Small-Cap ETF

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Many exchange-traded funds (ETFs) offer a special focus. One way such funds accomplish this goal is by investing in stocks on a market-capitalization basis. The iShares Russell 2000 ETF (IWM), which exclusively holds small-cap positions, uses this method.

IWN models its portfolio after the Russell 2000 Index, a widely used market measure that tracks 2,000 U.S. companies. This focus means that IWM can be a useful diversification tool, since investors who choose to buy this fund will have their capital spread across 2,000 companies. In addition, small-cap stocks have turned in a strong performance historically, especially in good economies, which may give IWM further appeal if you expect economic improvement.

Last year, this fund gained 3.69%, but it already is up an additional 3.03% since the New Year began. The fund rose from a low point in October to jump more than 15%, as the following chart shows.

iwm_0215

In addition, IWM’s $29.7 billion in assets make it the eighth-largest ETF. Its 1.31% dividend yield can provide a bit of extra income, though IWM is a vehicle more geared towards growth. It has a modest expense ratio of 0.20%.

The largest sector weighting in this fund is financial services, 23.62%; followed by technology, 17.92%; and healthcare, 15.36%. The 10 largest holdings here account for just 3.12% of assets, leaving plenty of room for IWM’s expansive range of positions to have an impact. The top holdings include Quorvo Inc. (QRVO), 0.54%; Isis Pharmaceuticals Inc. (ISIS), 0.45%; Brunswick Corp (BC), 0.29%; Office Depot Inc. (ODP), 0.28%; and Graphic Packaging Holding Co. (GPK), 0.28%.

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For investors seeking an ETF that lets them speculate in a large number of smaller companies, rather than a comparatively modest number of larger ones, iShares Russell 2000 ETF (IWM) is a useful and convenient fund to consider.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my e-letter column from last week about an emerging markets ETF. I also invite you to comment in the space provided below.

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