The Russell 2000 is up over 30% the last three months and about 9% so far this year. ETF investors looking for niche exposure to revenue-producing small cap equities may want to consider the Invesco S&P SmallCap 600 Revenue ETF (RWJ), which is up over 20% year-to-date.
RWJ seeks to track the investment results of the S&P SmallCap 600 Revenue-Weighted Index. The fund will invest at least 90% of its total assets in the securities that comprise the index.
The index is designed to measure the performance of positive revenue-producing constituent securities of the S&P Small Cap 600. The Parent index is comprised of common stocks of approximately 600 small-capitalization companies that generally represent the small cap universe of the U.S. equity market.
This ETF offers exposure to small cap U.S. stocks, an asset class that is included in most long-term portfolios and can be useful for tactical traders looking to implement a tilt towards riskier securities. RWJ is one of dozens of options for small cap exposure through ETFs, distinguishing itself from the alternatives though the unique weighting methodology employed.
RWJ’s methodology may be appealing for investors who see value in a strategy that shifts exposure towards companies with low price-to-sales multiples, and may also be appealing for those looking to utilize alternatives to market cap-weighting to avoid the strategy’s tendency to skew towards overvalued stocks.
The fund is up over 50% the past year:
Global Economy Recovering with Small Caps
As the global economy recovers, small caps tend to capture the upside of capital markets trending higher. As a Business Insider article notes, “small-caps have had ‘a tremendous rebound,’ says James Gowen, chief investment officer at Spouting Rock Asset Management in Pennsylvania. He said earnings expectations have ‘really started to come up.’”
“Small-caps crashed in March when coronavirus first took hold around the world: the Russell 2000 plunged more than 40% from the middle of February to the middle of March,” the article added. “Bigger companies were less badly affected – the S&P 500 fell around 33% in the same period – and then bounced back more sharply as the widespread switch to home-working boosted the tech giants.”
Once the U.S. election came and went, small caps took off, besting their large cap brethren in a strong November.
“But things started to shift in November, when positive vaccine trial results led to hopes that the COVID-19 pandemic could soon be curtailed,” the article added further. “Suddenly, smaller firms – whose stocks were cheaper – started to look like they could deliver higher returns in 2021 as the economy recovered.”
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