In this article, we will discuss the 10 best performing small-cap ETFs in 2022.
Investing in small–cap ETFs over large–cap equities can be a wise move for investors looking to diversify their portfolios. Small–cap ETFs provide investors with exposure to a wide range of small–cap companies that may offer higher returns than large–cap stocks over the long term. Small–cap stocks are less established, meaning they tend to be more volatile than larger stocks. This means that the potential for gain, or loss, is greater.
Analyst Bullish on Small Caps
On December 7, Bank of America’s head of U.S. small and mid cap strategy, Jill Carey Hall, made the bull case for small caps in an interview on CNBC. According to Jill Carey Hall, there is more downside risk for large caps, relative to small caps. The analyst believes “small caps could hold up better” since they are “more adequately pricing in a recession”. Jill Carey Hall noted that the current market situation has the same theme as the downturns in the 1970s and 1980s period, and during those downturns, small caps outperformed relative to large caps.
Demand for Small-Cap ETFs is Strong
On December 8, Cinthia Murphy, ETF Think Tank Director of Research, appeared in an interview on Yahoo Finance Live where she discussed small-cap ETFs and trends around them. Cinthia Murphy noted that small-cap ETFs have seen a surge in demand and investor attention over the last month. Here is Cinthia Murphy’s bull case for small caps:
“In a post recessionary environment, small caps tend to outperform large caps. They are also currently at their cheapest valuation, relative to large caps, in something like 20 years. In the last month (November 2022) alone, more than 80% of all small-cap ETFs picked up assets. The small-cap value is even stronger, because value is the factor that’s working relative to growth.”
While large-cap blue chips such as Microsoft Corporation (NASDAQ:MSFT), The Coca-Cola Company (NYSE:KO), and Ford Motor Company (NYSE:F) are typically safe and good long-term investments, for risk-averse investors looking to diversify their portfolios and increase their exposure to small-cap equities, small-cap ETFs can be a decent investment vehicle. Small-cap ETFs also offer investors the advantage of diversification and increased liquidity. Investors can gain exposure to a range of small companies, reducing the risk of investing in just one company, and can buy and sell shares more easily, which can help to reduce the cost of trading. This piece will focus on some of the best-performing small-cap ETFs in 2022.
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Our Methodology
To compile this list, we screened for small-cap ETFs and filtered out the highest-returning ETFs from them. Along with each ETF, we have mentioned its expense ratio, portfolio breakdown, the index it tracks, and most notable holdings. These ETFs are arranged in increasing order of the year-to-date gains, as of December 9.
Best Performing Small-Cap ETFs in 2022
10. First Trust NASDAQ ABA Community Bank Index Fund (NASDAQ:QABA)
YTD Return as of December 9: -6.92%
The First Trust NASDAQ ABA Community Bank Index Fund (NASDAQ:QABA) uses a full replication technique to mirror the performance of the NASDAQ OMX ABA Community Bank Index. The fund has an expense ratio of 0.60% and its assets under management are valued at $174.15 million. As of December 9, the fund has lost 6.92% year to date and has outperformed the S&P 500 by 11%. The fund is one of the best performing small-cap ETFs in 2022.
The First Trust NASDAQ ABA Community Bank Index Fund (NASDAQ:QABA) has 173 holdings and a top ten holdings concentration of 23.78%. One of the most prominent holdings of the fund is United Bankshares, Inc. (NASDAQ:UBSI). As of September 30, Basswood Capital is the dominant shareholder in United Bankshares, Inc. (NASDAQ:UBSI) and has a position worth $8.3 million.
This December, Piper Sandler analyst Casey Orr Whitman reinstated coverage of United Bankshares, Inc. (NASDAQ:UBSI) with a Neutral rating and a $45 price target.
9. Invesco S&P SmallCap Industrials ETF (NASDAQ:PSCI)
YTD Return as of December 9: -6.83%
The Invesco S&P SmallCap Industrials ETF (NASDAQ:PSCI) has an expense ratio of 0.29% and is yielding 0.74% on a quarterly basis. The fund tracks the returns of the S&P SmallCap 600 Capped Industrials Index and uses a full replication technique. The fund is one of the best performing small-cap ETFs in 2022 and has lost 6.83% year to date, as of December 9. The fund has outperformed the S&P 500 by roughly 11%.
The Invesco S&P SmallCap Industrials ETF (NASDAQ:PSCI) has 89 holdings concentrated in the industrials, materials, and consumer cyclical segments. The fund has a top ten holdings concentration of 25.90%. One of its top holdings is Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD). As of December 9, Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) has gained 15.89% year to date.
On November 1, Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) reported that its revenue for the third quarter of fiscal 2022 amounted to $549.80 million. The company reported earnings per share of $0.45 and outperformed analyst expectations by $0.01.
At the close of Q3 2022, Steel Partners was the largest shareholder in Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) and disclosed a position worth $157.9 million in the company.
For risk-inverse investors, blue-chips can be reliable long-term investments. Some of the top blue-chip stocks that are safe and reliable investments include Microsoft Corporation (NASDAQ:MSFT), The Coca-Cola Company (NYSE:KO), and Ford Motor Company (NYSE:F).
8. VanEck BDC Income ETF (NYSEARCA:BIZD)
YTD Return as of December 9: -6.64%
The VanEck BDC Income ETF (NYSEARCA:BIZD) has lost 6.64% year to date, as of December 9, and is placed on our list of the best-performing small-cap ETFs in 2022. The fund tracks the returns of the MVIS US Business Development Companies Index, by using full replication technique, and has an expense ratio of 0.41%. The fund has a trailing twelve-month yield of 10.25% and pays out dividends on a quarterly basis.
The VanEck BDC Income ETF (NYSEARCA:BIZD) has 26 holdings and a top ten holdings concentration of 75.19%. The fund’s assets under management are valued at $542.43 million. One of the top ten holdings of the VanEck BDC Income ETF (NYSEARCA:BIZD) is Ares Capital Corporation (NASDAQ:ARCC). On October 27, Citi analyst Arren Cyganovich revised his price target on Ares Capital Corporation (NASDAQ:ARCC) to $21 from $24 and maintained a Buy rating on the shares.
As of September 30, Two Sigma Advisors is the top investor in Ares Capital Corporation (NASDAQ:ARCC) and has stakes worth $55.8 million in the company.
7. SPDR SSGA US Small Cap Low Volatility Index ETF (NYSEARCA:SMLV)
YTD Return as of December 9: -6.38%
The SPDR SSGA US Small Cap Low Volatility Index ETF (NYSEARCA:SMLV) invests in volatile stocks of small-cap companies and uses a representative sampling technique to mirror the performance of the SSGA US Small Cap Low Volatility Index. The fund has an expense ratio of 0.12% and is yielding 2.28%. The fund pays out dividends on a quarterly basis. As of December 9, The SPDR SSGA US Small Cap Low Volatility Index ETF (NYSEARCA:SMLV) has lost 6.38% year to date and has outperformed the S&P 500 by over 11%. The fund is one of the best performing small-cap ETFs in 2022.
The SPDR SSGA US Small Cap Low Volatility Index ETF (NYSEARCA:SMLV) has $205.39 million in assets under management and has 421 holdings, concentrated in the financials, industrials, and technology segments. The fund has a top ten holdings concentration of 7.21%, and among its top ten holdings, we have Agree Realty Corporation (NYSE:ADC). At the close of Q3 2022, CaaS Capital was the most prominent shareholder in the company and held a position worth $43.9 million.
As of December 9, Agree Realty Corporation (NYSE:ADC) has gained 5.30% over the past six months and is offering a dividend yield of 4.02%. On December 8, Mizuho analyst Haendel St. Juste raised his price target on Agree Realty Corporation (NYSE:ADC) to $73 from $68 and maintained a Neutral rating on the shares.
6. Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV)
YTD Return as of December 9: -5.47%
The Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV) has $283.28 million in assets under management and is one of the best performing small-cap ETFs in 2022. The fund has lost 5.47% so far in 2022, as of December 9, and has outperformed the S&P 500 by 12.5%. The fund invests in value stocks of small-cap companies and uses a full replication technique to mirror the returns of the S&P SmallCap 600 Pure Value Index.
The Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV) has an expense ratio of 0.35% and is yielding 1.65%. The fund has 167 holdings and a top ten holdings concentration of 16.29%. Olympic Steel, Inc. (NASDAQ:ZEUS) is one of the top ten holdings of the Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV). As of December 9, Olympic Steel, Inc. (NASDAQ:ZEUS) has gained 38.99% year to date and is offering a forward dividend yield of 1.09%. The stock is trading at a PE ratio of 3x, as of December 9.
On November 3, Olympic Steel, Inc. (NASDAQ:ZEUS) posted earnings for the fiscal third quarter of 2022. The company generated a revenue of $634.44 million, and reported an EPS of $1.14, outperforming Wall Street consensus by $0.14
As of September 30, Royce & Associates is the dominant shareholder in Olympic Steel, Inc. (NASDAQ:ZEUS) and has disclosed stakes worth $5.2 million in the company.
Some of the largest companies in the world that were once small caps include Microsoft Corporation (NASDAQ:MSFT), The Coca-Cola Company (NYSE:KO), and Ford Motor Company (NYSE:F).
5. Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC)
YTD Return as of December 9: -4.44%
The Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC) has lost 4.44% year to date, as of December 9, and is ranked among the best performing small-cap ETFs in 2022. The fund tracks the performance of the S&P SmallCap 600 Capped Consumer Staples Index, by using a full replication technique. The fund has an expense ratio of 0.29% and pays out dividends on a quarterly basis.
The Invesco S&P SmallCap Consumer Staples ETF (NASDAQ:PSCC) has 31 holdings concentrated in the consumer defensive and materials segments. The fund has a top ten holdings concentration of 52.67%. Among the fund’s most prominent holdings we have United Natural Foods, Inc. (NASDAQ:UNFI).
On November 29, Deutsche Bank analyst Krisztina Katai raised her price target on United Natural Foods, Inc. (NASDAQ:UNFI) to $47 from $46 and maintained a Hold rating on the shares.
As of September 30, Intrinsic Edge Capital is the top investor in United Natural Foods, Inc. (NASDAQ:UNFI) and has a position worth $19.44 million in the company.
4. ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV)
YTD Return as of December 9: -3.80%
As of December 9, the ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) has lost 3.80% year to date and has outperformed the S&P 500 by over 14%. The fund is one of the best performing small-cap ETFs in 2022 and uses a full replication technique to mirror the returns of the Russell 2000 Dividend Growth Index. The fund has an expense ratio of 0.40% and is yielding 2.30%.
The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) has 100 holdings and a top ten holdings concentration of 11.33%. The fund has investments concentrated in the industrials, financials, utilities, and materials segments. Lindsay Corporation (NYSE:LNN) is one of the top ten holdings of the fund. As of the end of Q3 2022, Royce & Associates is the largest investor in Lindsay Corporation (NYSE:LNN) and has a stake worth over $66 million.
On October 11, Stifel analyst Nathan Jones updated his price target on Lindsay Corporation (NYSE:LNN) to $173 from $176 and maintained a Buy rating on the shares.
3. Invesco S&P SmallCap Materials ETF (NASDAQ:PSCM)
YTD Return as of December 9: -2.32%
The Invesco S&P SmallCap Materials ETF (NASDAQ:PSCM) has an expense ratio of 0.29% and is offering a yield of 0.83%. The fund pays out dividends on a quarterly basis. The fund invests in small-cap materials stocks and uses a full replication technique to mirror the returns of the S&P SmallCap 600 Capped Materials Index. As of December 9, the fund has lost 2.32% year to date and is one of the best performing small-cap ETFs in 2022.
The Invesco S&P SmallCap Materials ETF (NASDAQ:PSCM) has $19.12 million in assets under management and has 34 holdings, with a top ten holdings concentration of 60.31%. Livent Corporation (NYSE:LTHM) is one of the most notable holdings of the Invesco S&P SmallCap Materials ETF (NASDAQ:PSCM).
On October 27, B. Riley analyst Matthew Key raised his price target on Livent Corporation (NYSE:LTHM) to $32 from $30, after taking coverage of the name with a Neutral rating.
As of September 30, Joho Capital is the top shareholder in Livent Corporation (NYSE:LTHM) and has disclosed a position of over $91.2 million.
Here is what First Pacific Advisors had to say about Livent Corporation (NYSE:LTHM) in its third-quarter 2022 investor letter:
“Livent Corporation (NYSE:LTHM) is an integrated, low-cost lithium miner and processor that was spun out of FMC Corporation in 2018.9 Lithium is an essential component of electric vehicle batteries, is chronically undersupplied and spot Lithium Carbonate continues to hit new highs even as other commodity prices have come down. 10 Livent is currently running at roughly breakeven profitability, but our work suggests they will benefit from rising Lithium prices and credible capacity expansion plans. This is an unusual investment for us – we are generally wary of our ability to forecast commodity markets and we have sized the Livent position commensurately.”
2. Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE)
YTD Return as of December 9: 35.64%
As of December 9, the Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE) has gained 35.64% year to date and is placed high on our list of the best performing small-cap ETFs in 2022. The fund uses a full replication technique to mirror the performance of the S&P SmallCap 600 Capped Energy Index. The fund has an expense ratio of 0.29% and $152.64 million in assets under management.
The Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE) has a top ten holdings concentration of 64.44% and a total of 27 holdings. The fund’s investments are concentrated in the energy and materials segments. One of the most notable holdings of the Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE) is Green Plains Inc. (NASDAQ:GPRE).
This October, BofA analyst Steve Byrne revised his price target on Green Plains Inc. (NASDAQ:GRPE) to $35 from $43 and maintained a Neutral rating on the shares.
At the close of Q3 2022, Ancora Advisors was the dominant stockholder in Green Plains Inc. (NASDAQ:GPRE) and held a position worth $119.6 million in the company.
1. SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA:XES)
YTD Return as of December 9: 41.49%
Topping our list of the best performing small-cap ETFs in 2022 is the SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA:XES). The fund uses a representative sampling technique to track the returns of the S&P Oil & Gas Equipment & Services Select Industry Index. As of December 9, the fund has gained 41.49% year to date and has outperformed the S&P 500 by over 59%. The fund has an expense ratio of 0.35% and is offering a yield of 0.36%.
The SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA:XES) has $320.06 million and a top ten holdings concentration of 42.23%. The fund has 35 investments concentrated in the energy sector. Of the fund’s top ten holdings, Halliburton Company (NYSE:HAL) is the most notable one. As of September 30, Pzena Investment Management is the top stockholder in Halliburton Company (NYSE:HAL) and has disclosed a position worth $384.5 million in the company.
On December 9, Raymond James analyst James Rollyson started coverage of Halliburton Company (NYSE:HAL) with a Strong Buy rating and a $53 price target.
Here is what Aristotle Atlantic Partners, LLC had to say about Halliburton Company (NYSE:HAL) in its third-quarter 2022 investor letter:
“Halliburton Company (NYSE:HAL) provides energy, engineering and construction services and is a manufacturer of products for the energy industry. The company offers services and products and integrated solutions to customers in the exploration, development, and production of oil and natural gas. Halliburton operates two business segments: Completion & Production and Drilling & Evaluation.
Our conviction in longer-term operating leverage is supported by the focus on improving cost structures. Upstream oil and gas spending over the longer term can benefit Exploration & Production (E&P) firms from sustained high oil and gas prices and a renewed urgency in global energy security. We believe the rightsizing of the company’s cost structure and forward focus on margins at the same time as E&Ps respond to new investment signals will drive both topline and bottom-line growth.”
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Disclosure: None. 10 Best Performing Small-Cap ETFs in 2022 is originally published on Insider Monkey.
