Best Small-Cap ETFs In May 2023

Are you in search of the following large factor within the inventory market? There’s an opportunity it’s hiding among the many small caps, as a result of these smaller firms usually stay ignored by traders. One method to achieve publicity to the whole section of the market is to purchase a small-cap ETF.

Matters lined on this web page:

What’s a small-cap ETF?

A small-cap ETF is an exchange-traded fund that invests available in the market’s smallest firms by way of what are known as small-capitalization, or small-cap, shares. Small-cap ETFs offer you a straightforward means to purchase the small-cap “haystack” relatively than search by way of it for the excessive performers.

Small-cap shares might sound small, however they’re not often that tiny. The entire worth of all their shares excellent is usually between a couple of hundred million {dollars} and some billion {dollars}. That’s small for the inventory market, although, the place market capitalization can hit a trillion {dollars}.

Buyers like small caps as a result of they will provide greater potential returns than large-cap shares, that are usually represented by the S&P 500 index. Nonetheless, as a result of they’re smaller and have fewer monetary sources, they’re usually riskier and extra risky, too.

Due to these dangers, investing in particular person small shares is healthier left to extra superior traders. However even newer traders should buy a basket of those firms by way of a small-cap ETF and make the most of the potential greater returns in undiscovered small shares.

Prime-performing small-cap ETFs

Bankrate chosen its high funds based mostly on the next standards:

• U.S. funds that seem in ETF.com’s screener for small-caps (progress, worth, mix)
• Funds among the many high performers over the past 5 years
• Efficiency measured on April 28, 2023 utilizing the newest figures from ETF.com.

Invesco S&P SmallCap 600 Income ETF (RWJ)

This ETF relies on the S&P SmallCap 600 Income-Weighted Index, which re-weights shares of the S&P SmallCap 600 Index by an organization’s income.

• 2023 YTD efficiency: -0.5 %
• Historic efficiency (annual over 5 years): 10.4 %
• Expense ratio: 0.39 %

Invesco S&P SmallCap Worth with Momentum ETF (XSVM)

This ETF tracks the S&P 600 Excessive Momentum Worth Index, which consists of 120 shares with the very best scores on momentum and worth elements.

• 2023 YTD efficiency: -4.3 %
• Historic efficiency (annual over 5 years): 9.4 %
• Expense ratio: 0.36 %

ALPS O’Shares U.S. Small-Cap High quality Dividend ETF (OUSM)

This ETF tracks the efficiency of the O’Shares U.S. Small-Cap High quality Dividend Index, which incorporates shares that exhibit low volatility, dividend progress and high-quality fundamentals.

• 2023 YTD efficiency: 5.1 %
• Historic efficiency (annual over 5 years): 8.3 %
• Expense ratio: 0.48 %

Pacer U.S. Small Cap Money Cows 100 ETF (CALF)

This ETF contains the highest 100 shares within the S&P SmallCap 600 based mostly on their free money circulate yield.

• 2023 YTD efficiency: 2.2 %
• Historic efficiency (annual over 5 years): 8.2 %
• Expense ratio: 0.59 %

Invesco DWA SmallCap Momentum ETF (DWAS)

This ETF relies on shares within the Dorsey Wright SmallCap Technical Leaders Index, which incorporates shares with sturdy momentum.

• 2023 YTD efficiency: -1.7 %
• Historic efficiency (annual over 5 years): 7.9 %
• Expense ratio: 0.60 %

Invesco Russell 2000 Dynamic Multifactor ETF (OMFS)

This index fund contains shares from the Russell 2000 index and weights them in response to the financial cycle and the state of the market, assigning them one in every of 5 funding kinds (worth, momentum, high quality, low volatility and dimension).

• 2023 YTD efficiency: -0.3 %
• Historic efficiency (annual over 5 years): 7.1 %
• Expense ratio: 0.39 %

JPMorgan Diversified Return U.S. Small Cap Fairness ETF (JPSE)

This fund tracks the JP Morgan Diversified Issue U.S. Small Cap Fairness Index.

• 2023 YTD efficiency: -0.4 %
• Historic efficiency (annual over 5 years): 6.9 %
• Expense ratio: 0.29 %

Invesco S&P SmallCap Momentum ETF (XSMO)

This ETF relies on the S&P SmallCap 600 Momentum Index, which incorporates 120 shares within the S&P SmallCap 600 Index having the very best “momentum scores.”

• 2023 YTD efficiency: -5.0 %
• Historic efficiency (annual over 5 years): 6.9 %
• Expense ratio: 0.37 %

VictoryShares U.S. Small Cap Excessive Dividend Volatility Weighted ETF (CSB)

This ETF tracks the efficiency of the Nasdaq Victory U.S. Small Cap Excessive Dividend 100 Volatility Weighted Index.

• 2023 YTD efficiency: -1.3 %
• Historic efficiency (annual over 5 years): 6.6 %
• Expense ratio: 0.35 %

Nuveen ESG Small-Cap ETF (NUSC)

This ETF tracks the TIAA ESG USA Small-Cap Index, which incorporates small firms within the U.S. that fulfill sure ESG (environmental, social and governance) standards.

• 2023 YTD efficiency: 1.0 %
• Historic efficiency (annual over 5 years): 6.6 %
• Expense ratio: 0.31 %

Are small-cap ETFs funding?

Investing in small-cap ETFs can present engaging returns so long as they’re bought at wise costs, however there are some drawbacks to concentrate on.

Small-cap ETFs can help you buy a diversified portfolio of smaller firms for a comparatively low value. Additionally they received’t require the in depth analysis that investing in particular person firms does and may be added to your general portfolio shortly to spice up publicity to the small-cap universe. Small caps can generate excessive returns as they develop and turn into bigger companies. Lots of immediately’s most profitable firms began as small caps.

However one disadvantage of investing in small-cap ETFs is that as probably the most profitable firms develop, they transfer on from being thought-about small-cap and lots of funds are pressured to promote them to remain consistent with their funding targets. You additionally received’t get the broad diversification that comes with different funds, so if an financial growth negatively impacts the small-cap universe, you received’t be protected. Small-cap funds additionally are usually extra risky than funds that maintain bigger, extra established firms.

(You might also wish to verify our listing of one of the best large-cap ETFs.)

Backside line

Small-cap ETFs are a gorgeous method to put money into a few of the market’s fastest-growing firms at low value with out the identical dangers of shopping for particular person shares. However like all investments within the inventory market, they aren’t with out threat and different drawbacks.

Editorial Disclaimer: All traders are suggested to conduct their very own impartial analysis into funding methods earlier than investing resolution. As well as, traders are suggested that previous funding product efficiency isn’t any assure of future value appreciation.