Goin’ Small with a Small-Cap ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.
dividend

One of the most contentious questions in investing is whether small-cap stocks or large-cap stocks are a better investment to secure your financial future.

Adherents of the large-cap-stocks-are-better theory point to research by JennisonDryden, indicating that investors are quicker to flee small-cap stocks for more stable large-cap stocks at the first sign of economic trouble. There does appear to be empirical support for this position in the current market.

According to Royce Investment Partners, during 3Q22 as a whole, the Russell 2000 Index was down 2.2%, with a large part of the decline due to the index’s 17.5% loss from the Aug. 15 to Sept. 30 time period. On an international level, the MSCI ACWI ex USA Small Cap Index declined by 8.4% in 3Q22.

That doesn’t mean, however, that we should throw small-cap stocks out with the proverbial bathwater. At the same time, the same report by JennisonDyrden mentions that small-cap stocks are often the first to bounce back during an economic recovery. This is at least partially because small-cap companies can shift physical and economic resources more rapidly than a large corporation and thus react more quickly to economic changes.

One way to generate profits from small-cap stocks is through the exchange-traded fund (ETF) Invesco S&P SmallCap 600 Revenue ETF (NYSEARCA: RWJ).

RWJ invests in securities that make up the S&P SmallCap 600. Then, unlike many of its fellow small-cap ETFs, RWJ sets up its portfolio by looking at each stock’s fundamentals and then weighting them by top-line revenue. This difference from its competitors is likely due to the S&P SmallCap 600 already screening its stocks for size, liquidity and financial viability. The index then weights its securities by revenue, with higher revenues leading to a heavier weight.

This ETF’s top holdings include World Fuel Services Corporation (NYSE: INT), United Natural Foods, Inc. (NYSE: UNFI), Group 1 Automotive, Inc. (NYSE: GPI), Andersons, Inc. (NASDAQ: ANDE), Sonic Automotive, Inc. Class A (NYSE: SAH), Asbury Automotive Group, Inc. (NYSE: ABG), Community Health Systems, Inc. (NYSE: CYH) and Insight Enterprises, Inc. (NASDAQ: NSIT).

As of Dec. 6, RWJ rose 3.26% in the past month and 7.28% for the past three months. It is currently down 8.03% year to date. 

Chart courtesy of www.stockcharts.com

The fund has amassed $970.84 million in assets under management and has an expense ratio of 0.39%.

While RWJ does provide an investor with a way to invest in small-cap stocks, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

share on:

Like This Article?
Now Get Jim's FREE Special Report:
The Top 11 Dividend ETFs to
Buy Right Now

Get up to 5X the yields of traditional income plays.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE