Which are the top 3 ETFs in small cap category?

Before finding the top three ETFs in small cap category, we must understand what small-cap is.

What is small cap? 

A small cap is a publicly-traded firm with a market valuation of $300 million to $2 billion. The exact figures differ. The most numerous corporations in the market are small-cap stocks. Small cap stocks outnumber large-cap and mid-cap companies combined. 

Small-cap stocks offer different risks and benefits for shareholders than their larger competitors due to their size. Small-cap stocks can have higher-than-average volatility, which means they suffer rapid increases and losses.  

If investors can tolerate the highs and lows over a lengthy period, they get proportional rewards. However, certain small-cap companies may experience extreme movements and be illiquid in the near term. 

The following indices are the benchmarks for the small-cap universe in the United States. Both include companies from a wide range of industries: 

The S&P SmallCap 600 Index is a measure of the performance of small-cap companies.  

The Russell 2000 index tracks the performance of 600 small-cap firms, whereas the S&P SmallCap 600 Index monitors the behavior of 600 small-cap companies.  

The Russell 2000 Index comprises about 2,000 of the smallest firms in the United States. 

The S&P’s small-cap Index has returned an average of 8.3 per cent a year over the last 20 years, compared to 8% and 6.3 per cent for its mid-and large competitors, respectively.

Top 3 ETFs in the small-cap category

Rank	ETF
1	SPDR Portfolio S&P 400 Mid Cap ETF
2	Schwab Fundamental US Small Co. Index ETF
3	ProShares S&P MidCap 400 Dividend Aristocrats ETF

SPDR Portfolio S&P 400 Mid Cap ETF 

By tracking the S&P mid-cap 400 Index, SPMD provides exposure to the mid-cap portion of the US equity market. The S&P Committee selects stocks based on market capitalization, focusing on sector balance, by assessing the share of each GICS (Global Industry Classification Standard) category in the Underlying Index to its weight in the S&P Total Market Index’s relevant market capitalization range.  

SPMD has experienced multiple names, Index, and ticker changes throughout the years, previously trading under the name RSCO in November 2005 and in August 2016. (Ticker: SMD).  

Finally, until January 24, 2020, it was also known as the SPDR Portfolio Mid Cap ETF, which tracked the S&P 1000 Index. The fund uses a sampling approach, and the Index-rebalancing happens every three months.  

The MSCI ESG Fund Rating for the SPDR Portfolio S&P 400 Mid Cap ETF is A, with 6.51 out of ten. The MSCI ESG Fund Rating assesses a portfolio’s long-term resistance to risks and opportunities posed by environmental, social, and governance variables.

Performance

Performance [as of 14/03/22]	1 year	3 years	5 years	10 years
SPMD	-2.50%	11.90%	10.17%	11.20%
S&P Mid Cap 400	-2.49%	11.95%	10.10%	11.26%

The fund invests completely in the US market.

SPMD Top 10 Holdings 

 

Source: etf.com

SPMD details 

Brand	SPDR
Expense Ratio	0.05%
YTD Return	-10.13%
AUM	$5.05B
Number of Holdings	400
Avg. Spread ($)	$0.01
Average Daily $ Volume	$70.82M

Schwab Fundamental US Small Co. Index ETF 

Small caps are approached differently by FNDA. FNDA picks and weights stocks depending on 5-year means of maintained operations cash flow, adapted sales, dividends plus buybacks, rather than a standard cap-weighted method.  

It determines the bottom 12.5 per cent of the qualifying list as a ‘small-cap’ index. The Index’s constituents’ weights are decided annually and partially reconstituted quarterly.  

The Index is segregated into four segments, each overhauled on a rolling quarterly basis. Despite its non-traditional technique, the fund tracks its cap-weighted benchmark rather well, eliminating primary sector and size distortions.  

The MSCI ESG Fund Rating for the Schwab Fundamental U.S. Small Company Index ETF is BBB, based on 5.45 out of 10. The MSCI ESG Fund Rating assesses a portfolio’s long-term resistance to risks and opportunities posed by environmental, social, and governance variables. 

Performance 

Performance [as of 14/03/22]	1 year	3 years	5 years	10 years
SPMD	-2.69%	12.25%	9.93%	–
MSCI USA Small Cap Index	-10.15%	11.19%	10.53%	–

The fund invests entirely in the US market 

FNDA Top 10 Holdings 

 Source: etf.com

FNDA details 

Brand	Schwab
Expense Ratio	0.25%
YTD Return	-8.09%
AUM	$4.75B
Number of Holdings	902
Avg. Spread ($)	$0.05
Average Daily $ Volume	$15.71M

ProShares S&P Midcap 400 Dividend Aristocrats ETFs 

REGL operates in a competitive market, but it stands out from its mid-cap competition in various ways. To begin with, it’s a dividend-focused fund that only invests in firms that have raised their dividends for at least 15 years.  

The strict constraints of REGL limit it to a few dozen stocks, resulting in a concentrated portfolio. It targets a minimum of 40 companies, with dividend growth histories being shortened if the minimum count is not met, and each sector is limited to just 30% of the Index weight.  

Finally, the fund is equal-weighted, which means it has a lesser tilt than most mid-cap ETFs. The indicator is reweighted quarterly and reconstituted once a year.  

The MSCI ESG Fund Rating for ProShares S&P MidCap 400 Dividend Aristocrats ETF is A, with 5.95 out of 10. The MSCI ESG Fund Rating assesses a portfolio’s long-term resistance to risks and opportunities posed by environmental, social, and governance variables. 

Performance 

Performance [as of 14/03/22]	1 year	3 years	5 years	10 years
REGL	1.96%	10.33%	8.66%	–
MSCI USA Mid Cap Index	0.53%	14.52%	12.28%	–

The fund invests entirely in the US market 

REGL Top 10 Holdings 

 Source: etf.com

REGL details 

Brand	ProShares
Expense Ratio	0.41%
YTD Return	-4.90%
AUM	$1.05B
Number of Holdings	49
Avg. Spread ($)	$0.06
Average Daily $ Volume	$4.41M

One should look at these ETFs before investing in the small-cap category in the USA.

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