4 Reasons to Bet on Top-Ranked Small-Cap Growth ETFs




  • In Business
  • 2019-01-11 18:00:06Z
  • By Sanghamitra Saha
4 Reasons to Bet on Top-Ranked Small-Cap Growth ETFs
4 Reasons to Bet on Top-Ranked Small-Cap Growth ETFs  

Small-caps are off to a great start this year, clearly outperforming their larger counterparts. iShares Russell 2000 ETF IWM is up 7.3% so far this year (as of Jan 10, 2019) compared with 3.6% of the S&P 500 and 5.3% advancement of the Nasdaq composite (read: Risk-On Trade is Back: ETFs That Gained the Most).

And why not? Fundamentals are in favor of small-caps, at least for the near term. The U.S. economy has been in great shape compared with several other developed economies. The latest jobs data corroborate the fact.

Let's see which factors should propel small-cap growth ETFs higher in the near term.

Upbeat U.S. Economy

U.S. employers added 312,000 new jobs in December, after an upwardly revised 176,000 in November. The number breezed past market expectations of 177,000. The December jobs gain took total U.S. employment to above 150 million for the first time.

On the basis of this chartbuster number, Atlanta Federal Reserve lately upgraded its forecast for Q4 GDP data to 2.8%from 2.6%. The latest forecasts for fourth-quarter real consumer spending growth and real private fixed investment growth rose to 3.8% and 2.8% from 3.6% and 2.4%, respectively.

Dovish Fed Minutes

Fed chair Jerome Powell set a much-desired dovish tone. In fact, the latest Fed minutes show that the Fed will be flexible on policy, including balance sheet and is in no hurry to hike rates. Powell assured to take the downside risks of Fed policy tightening into consideration in future meetings.

Investors should also note that the Fed had lowered its interest rate forecast for 2019 to two hikes from three.Since several market participants including analysts at Rabobank believe that the implied probability of a Fed rate hike in March is now zero and recessionary fears are out of picture as of now, small-cap stocks should not suffer from rising rate worries in the current backdrop.

Double-Digit Earnings Growth Expectations for 2019

On the earnings front, analysts expect small-cap companies in the Russell 2000 index to record double-digit profit gains in 2019, per financial data provider Refinitiv, as quoted on Wall Street Journal. The earnings growth prospect clearly beats the S&P 500.

Profits from the Russell 2000 are estimated to increase about 16% in Q1 of 2019 from 12.6% expected growth in Q4 of 2018. Per Earnings Trends issued on Jan 9, 2019, the small-cap index S&P 600 is expected to log 5.1% growth rate in the Q4 and 7.9% in the first quarter of 2019. And the S&P 500 is expected see earnings growth of 10.7% in Q4 and 1.9% in Q1 of 2019, per Earnings Trends.

Cheaper Valuation

The last year was lackluster for small-caps, which underperformed the larger-cap indexes. December was the worst month ever for Russell 2000, which lost 12% and entered the bear market. The index also registered its worst annual performance since 2008 financial crisis, per Wall Street Journal.

The selloff brought valuations of the constituent companies to relatively cheaper level. According to Factset, valuation of pint-sized stocks slipped to their lowest level in six years as well as below the S&P 500, as quoted on Wall Street Journal.

Given this, we highlight some top-ranked small-cap growth ETFs that should do well in the coming days.

Invesco Russell 2000 Pure Growth ETF (PXSG)

The 307-stock fund focuses mainly on Healthcare (29.05%) and Information Technology (24.3%). Industrials (16.6%) and Consumer Discretionary (13.85%) also have double-digit weight. The fund charges 39 bps in fees.

Janus Henderson Small Cap Growth Alpha ETF (JSML)

The underlying index selects small-sized capitalization stocks that are poised for smart growth by evaluating each company's performance in three critical areas: growth, profitability, and capital efficiency. The fund charges 35 bps in fees. This fund is also heavy on the above-mentioned sectors.

iShares S&P Small-Cap 600 Growth ETF (IJT)

The 340-stock fund has double-digit weights in Healthcare (18.26%), Industrials (17.72%), Financials (16.32%), Consumer Discretionary (13.87%) and Information Technology (13.46%). The fund charges 25 bps in fees.

Vanguard Small-Cap Growth ETF (VBK)

The underlying CRSP U.S. Small Cap Growth Index measures the investment return of small-capitalization growth stocks. The 644-stock fund puts double-digit weights in Consumer Services, Financials, Healthcare, Industrials and Technology. The fund charges 7 bps in fees.

Want key ETF info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARS-SP SC GR (IJT): ETF Research Reports

ISHARS-R 2000 (IWM): ETF Research Reports

VIPERS-SC GRWTH (VBK): ETF Research Reports

PWRSH-F P SM GR (PXSG): ETF Research Reports

JANUS SMCAP GR (JSML): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
COMMENTS

More Related News

US Fed now expects no rate hikes in 2019
US Fed now expects no rate hikes in 2019

The Federal Reserve sent a strong signal the US economy is slowing, indicating Wednesday it will not raise the benchmark lending rate again this year amid a drop in spending and broader global uncertainty. It was an aggressive downshift that came as a shock to many economists, since as recently as September the Fed expected to raise rates three times in 2019. "It may be some time before the outlook for jobs and inflation calls clearly for a change in policy," Federal Reserve Chairman Jerome Powell told reporters following the announcement.

'No-one is breaking out the champagne': emerging markets investors treading carefully

After plowing billions into emerging market equities since October, investors have started to show signs of hesitation, but an uptick in earnings expectations should reassure those hoping to capitalize on stronger economic growth in the emerging world. Emerging equity funds have suffered outflows over the past three weeks, according to EPFR data, and investors in a recent Bank of America Merrill Lynch survey described emerging markets as the "most crowded trade". Year-to-date net fund flows into emerging markets total $15.7 billion, against $61.8 billion exiting developed markets, and global asset allocators have been increasing their exposure, betting that the worst is over and a...

US Fed starts meeting, with no rate hike expected
US Fed starts meeting, with no rate hike expected

The US Federal Reserve on Tuesday began its second policy meeting of the year but has signaled it will not raise interest rates as the global economy slows. Members of the interest rate-setting Federal Open Market Committee have said repeatedly since December they will be "patient" before

Goldman Sachs to Acquire S&P
Goldman Sachs to Acquire S&P's Investment Advisory Services

Despite intense competition among ETFs service providers, Goldman's (GS) acquisition of S&P's Investment Advisory Services will help boost revenues.

5 High-Dividend ETFs Available Under $15
5 High-Dividend ETFs Available Under $15

These high-dividend ETFs are available below $15.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business

facebook
Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.