In this article, we will look at 10 small-cap ETFs to buy now.
With the ongoing Ukraine crisis, Covid-related lockdowns in China, Fed tightening, and skyrocketing inflation, investors are trying to best maintain composure and critically assess where to place their bets in order to maintain their gains during these volatile times. Exchange-traded funds are one of investors’ favorite tools that they use to rebalance their portfolios.
Big tech has suffered major losses due to the tech selloff that occurred during the second quarter of 2022, causing the drastic drop in the tech-heavy Nasdaq Composite index. As of July 5, the Nasdaq Composite is down well past 20% and has officially entered the bear market territory. High-growth stocks like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN) have lost billions of dollars in value so far this year, and investors that held individual shares in these companies have incurred losses as well. On the contrary, investors that had invested in a large-cap ETF that tracked indices that were composed of these stocks and many others have not seen major drops in their returns, simply due to the added diversification. However, for the purposes of this article, we will be looking at small-cap ETFs that investors can look into in order to better diversify their portfolios and in turn manage risk.
Photo by Nicholas Cappello on Unsplash
Our Methodology
To determine the 10 small-cap ETFs to buy now, we conducted extensive research on ETFs that track small-cap and small-cap indices. We then assessed each ETF’s portfolio concentrations and preferred ETFs that had concentrated their investments in some of the more resilient and less volatile sectors such as healthcare, utilities, and consumer staples.
We have also mentioned notable holdings of each ETF and included their analyst rating and hedge fund sentiment as well.
10 Small-Cap ETFs to Buy Now
10. Invesco S&P SmallCap 600 Revenue ETF (NYSE:RWJ)
Invesco S&P SmallCap 600 Revenue ETF (NYSE:RWJ) seeks to track the performance of the S&P SmallCap 600 Revenue-Weighted Index and invests in growth and value stocks of small-cap companies. The fund uses a full replication technique. Invesco S&P SmallCap 600 Revenue ETF (NYSE:RWJ) has 591 holdings that are spread across energy, consumer defensive, healthcare, industrials, and financials segments, among others. The fund has a top ten holdings concentration of 18.16%. As of July 5, Invesco S&P SmallCap 600 Revenue ETF (NYSE:RWJ) offers a yield of 0.70% and has an expense ratio of 0.39%.
United Natural Foods, Inc. (NYSE:UNFI) is among the top 10 holdings of Invesco S&P SmallCap 600 Revenue ETF (NYSE:RWJ). This June, Deutsche Bank analyst Krisztina Katai raised her price target on United Natural Foods, Inc. (NYSE:UNFI) to $53 from $46 and reiterated a Hold rating on the shares, citing sustained strength in food at home trends for her upgraded price target.
Hedge funds are raising their stakes in United Natural Foods, Inc. (NYSE:UNFI). Insider Monkey found 20 hedge funds long United Natural Foods, Inc. (NYSE:UNFI) at the end of Q1 2022. The total stakes of these hedge funds amounted to $115.40 million, up from $101.56 million a quarter ago with 21 positions.
In Q1 2022, Intrinsic Edge Capital raised its stakes by 111% in United Natural Foods, Inc. (NYSE:UNFI) and brought them to $23.08 million. Intrinsic Edge Capital is the leading shareholder in the company.
In order to have a well-balanced and truly diversified portfolio, investors should invest in all categories including small-cap, mid-cap, and large-cap. Some of the most prominent growth stocks investors can gain access to through a large-cap ETF include Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN).
9. iShares Micro-Cap ETF (NYSE:IWC)
iShares Micro-Cap ETF (NYSE:IWC) is an exchange-traded fund that is managed by BlackRock Fund Advisors. The fund invests in both growth and value stocks of micro-cap companies. iShares Micro-Cap ETF (NYSE:IWC) seeks to track the performance of the Russell Microcap Index by using a representative sampling technique. As of July 5, iShares Micro-Cap ETF (NYSE:IWC) has 916.98 million in assets under management, an expense ratio of 0.60%, and a yield of 0.79%. The fund has stakes in 1,766 micro-cap companies, with the majority of its investments in the financials, healthcare, industrials, and energy segments.
Among iShares Micro-Cap ETF’s (NYSE:IWC) top holdings, we have Northern Oil and Gas, Inc. (NYSE:NOG). On June 13, Truist analyst Neal Dingmann raised his price target on Northern Oil and Gas, Inc. (NYSE:NOG) to $58 from $52 and reiterated a Buy rating on the shares. Moreover, as of July 5, Northern Oil and Gas, Inc. (NYSE:NOG) has a forward dividend yield of 2.91%.
At the end of Q1 2022, 27 hedge funds were long Northern Oil and Gas, Inc. (NYSE:NOG) with stakes worth $244.58 million. This is compared to 26 hedge funds in the preceding quarter with stakes worth $241.07 million. The hedge fund sentiment for the stock is positive.
As of March 31, Angelo Gordon & Co is the leading shareholder in Northern Oil and Gas, Inc. (NYSE:NOG) with stakes worth $49.96 million.
8. Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (NYSE:GSSC)
Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (NYSE:GSSC) focuses its investments on value, momentum, and less volatile stocks of small-cap companies. The fund seeks to track the performance of the Goldman Sachs ActiveBeta U.S. Small Cap Equity Index, and employs a full replication technique. Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (NYSE:GSSC) has diversified its investments across an array of sectors which include financials, industrials, healthcare, consumer defensive, and basic materials among others. The fund has 1249 holdings and a top ten holdings concentration of 4.60%. As of July 5, Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (NYSE:GSSC) has an expense ratio of 0.20% and offers a yield of 1.11%.
Among Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF’s (NYSE:GSSC) most notable holdings we have a leading North American hydrocarbon exploration and production company, Ovintiv Inc. (NYSE:OVV). On June 28, JPMorgan analyst Arun Jayaram expressed his bullishness on the stock after he raised his price target on Ovintiv Inc. (NYSE:OVV) to $64 from $56 and also upgraded the stock to Overweight from Neutral.
At the end of Q1 2022, 44 hedge funds were bullish on Ovintiv Inc. (NYSE:OVV) with stakes worth $2.09 billion. This is compared to 44 positions in the previous quarter with stakes worth $1.07 billion.
In the first quarter of 2022, Marshall Wace LLP raised its stakes in Ovintiv Inc. (NYSE:OVV) by 26%, bringing them to $263.32 million. Marshall Wace LLP is the dominating stakeholder in the company.
Here is what Miller Value Partners had to say about Ovintiv Inc. (NYSE:OVV) in its “Miller Opportunity Equity” fourth-quarter 2021 investor letter:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
7. Principal U.S. Small Cap Index ETF (NASDAQ:PSC)
Principal U.S. Small-Cap Index ETF (NASDAQ:PSC) invests in small-cap value, growth, and momentum stocks. The fund seeks to track the performance of the Nasdaq US Small Cap Select Leaders Index, and employs a full replication technique. Principal U.S. Small-Cap Index ETF (NASDAQ:PSC) has 581 holdings and a top ten holdings concentration of 6.90%. The fund has investments across an array of sectors, with the most concentrated ones being financials, healthcare, industrials, technology, and consumer cyclical. As of July 5, Principal U.S. Small-Cap Index ETF (NASDAQ:PSC) has an expense ratio of 0.38% and offers a yield of 1.26%.
Among the fund’s top holdings we have Ryder System, Inc. (NYSE:R), a leading American transportation and logistics company. On June 6, Stifel analyst Bert Subin raised his price target on Ryder System, Inc. (NYSE:R) to $90 from $80 and maintained a Hold rating on the shares.
The hedge fund sentiment for Ryder System, Inc. (NYSE:R) is positive. Insider Monkey found 26 hedge funds bullish on Ryder System, Inc. (NYSE:R) at the close of Q1 2022. These funds held collective stakes worth $599.25 million in the logistics company, up from $514.73 million a quarter ago with 22 positions.
As of March 31, HG Vora Capital Management is the leading shareholder in Ryder System, Inc. (NYSE:R) with stakes worth $337.15 million. The investment covers 9.95% of the hedge fund’s 13F portfolio.
6. Invesco S&P SmallCap 600 Pure Value ETF (NYSE:RZV)
Invesco S&P SmallCap 600 Pure Value ETF (NYSE:RZV) seeks to track the performance of the S&P SmallCap 600 Pure Value Index by using a full replication technique and invests in value stocks of small-cap companies. As of July 5, Invesco S&P SmallCap 600 Pure Value ETF (NYSE:RZV) has an expense ratio of 0.35% and offers a yield of 1.27%. The fund has concentrated its investments across consumer cyclical, consumer defensive, financials, and industrials segments, among others. Invesco S&P SmallCap 600 Pure Value ETF (NYSE:RZV) has 171 holdings and a top ten holdings concentration of 14.79%.
Mercer International Inc. (NASDAQ:MERC) manufactures and sells northern bleached softwood kraft pulp in Europe, the United States, Asia, and internationally. It is among the top holdings of the Invesco S&P SmallCap 600 Pure Value ETF (NYSE:RZV). On June 23, TD Securities analyst Sean Steuart trimmed his price target on Mercer International Inc. (NASDAQ:MERC) to $15 from $17 but maintained a Hold rating on the shares.
Hedge funds are raising their stakes in Mercer International Inc. (NASDAQ:MERC). Insider Monkey found 15 hedge funds bullish on Mercer International Inc. (NASDAQ:MERC) at the close of Q1 2022. The total stakes of these hedge funds amounted to $112.24 million, up from $106.75 million a quarter ago with 17 positions.
As of March 31, Redwood Capital Management is the dominating shareholder in Mercer International Inc. (NASDAQ:MERC). The hedge fund owns over 3.1 million shares of the company which amounts to a stake value of $43.48 million and covers 3.87% of Redwood Capital Management’s 13F portfolio.
For investors looking to have increased diversification in their portfolios and a mix of both value and growth stocks, they can look into growth ETFs. Investors can access some of the more risky investments right now such as Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN), in a secure way through a large-cap growth ETF.
5. iShares S&P Small-Cap 600 Value ETF (NYSE:IJS)
iShares S&P Small-Cap 600 Value ETF (NYSE:IJS) is an ETF that primarily invests in small-cap value stocks. The fund seeks to track the performance of the S&P SmallCap 600 Value Index, and uses a representative sampling technique. iShares S&P Small-Cap 600 Value ETF (NYSE:IJS) has 467 holdings and a top ten holdings concentration of 8.99%. As of July 5, the fund has $8.55 billion in assets under management, an expense ratio of 0.18%, and offers a yield of 1.47%.
Southwestern Energy (NYSE:SWN) is one of the top holdings of iShares S&P Small-Cap 600 Value ETF (NYSE:IJS). On June 15, Benchmark analyst Subash Chandra upgraded Southwestern Energy (NYSE:SWN) to Buy from Hold and gave the stock a $14 price target.
Investors are betting big on energy since the first quarter of 2022. Insider Monkey found 35 hedge funds long Southwestern Energy (NYSE:SWN) at the close of Q1 2022. The total stakes of these hedge funds came in at $516.68 million, up from $255.41 million in the preceding quarter with 24 positions. The hedge fund sentiment for the stock is positive.
In the first quarter of 2022, D E Shaw raised its stakes in Southwestern Energy (NYSE:SWN) by 127%, bringing them to $180.81 million. D E Shaw is the most prominent stakeholder in the company.
Here is what Greenlight Capital had to say about Southwestern Energy (NYSE:SWN) in its first-quarter 2022 investor letter:
“SWN is the second largest producer of natural gas in the U.S. The company is well-situated to satisfy growing domestic and export demand. Over the short, medium and long term, Europe now intends to reduce its reliance on Russian energy and increase its use of U.S. LNG. Based on its 2021 year-end reserves – which assumed a $3.60/MMBtu long-term natural gas price – SWN has a PV-104 value of $13.83 per share. By the end of the first quarter, the U.S. natural gas 5-year forward curve averaged $4.28/MMBtu, while international seaborne LNG was close to $20/MMBtu. Over the intermediate term, with the benefit of substantial global investment in infrastructure, we expect prices for U.S. and international natural gas to converge. We acquired our shares at an average price of $6.58. SWN shares ended the quarter at $7.17.”
4. SPDR S&P 600 Small Cap Value ETF (NYSE:SLYV)
SPDR S&P 600 Small Cap Value ETF (NYSE:SLYV) tracks the performance of the S&P SmallCap 600 Value Index and the S&P 500 Index using a relative sampling technique. The fund invests across a diverse range of sectors, with a preference for value stocks of small-cap companies. The major chunk of its portfolio is attributed to financials, real estate, industrials, and consumer cyclical segments. As of July 5, SPDR S&P 600 Small Cap Value ETF (NYSE:SLYV) has $3.86 billion worth of assets under management, has a dividend yield of 1.51%, and has an expense ratio of 0.15%.
Helmerich & Payne, Inc. (NYSE:HP) is ranked among the top holdings of SPDR S&P 600 Small Cap Value ETF (NYSE:SLYV). Helmerich & Payne, Inc. (NYSE:HP) operates in the oil & gas industry and offers well drilling and related services for exploration and production companies. On June 8, Susquehanna analyst Charles Minervino raised his price target on Helmerich & Payne, Inc. (NYSE:HP) to $62 from $55 and maintained a Positive rating on the shares.
At the close of Q1 2022, 28 hedge funds were long Helmerich & Payne, Inc. (NYSE:HP) with stakes worth $212.26 million. This is compared to 25 positions a quarter ago with stakes of $116.29 million. The hedge fund sentiment for the stock is positive.
As of March 31, Ken Fisher’s Fisher Asset Management is the most prominent shareholder in Helmerich & Payne, Inc. (NYSE:HP) owning over 1.15 million shares of the company. This amounts to a stake of $49.43 million.
3. Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV)
Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV) invests in public equity markets of the United States and seeks to track the performance of the S&P SmallCap 600 Value Index using a full replication technique. Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV) has 465 holdings spread across financials, real estate, healthcare, energy, and consumer cyclical segments. The fund has a top 10 holdings concentration of 7.44%. As of July 5, Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV) has $1.14 billion worth of assets under management, an expense ratio of 0.15%, and offers a yield of 1.52%.
CVB Financial Corp. (NASDAQ:CVBF) is a notable stock among the top holdings of Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV). On June 15, CVB Financial Corp. (NASDAQ:CVBF) raised its quarterly cash dividend by 5.6% to $0.19 per share from $0.18 per share. The dividend is payable on July 15 to shareholders of record on June 30. As of July 5, CVB Financial Corp. (NASDAQ:CVBF) has a forward dividend yield of 3.02%.
Hedge funds are raising their stakes in CVB Financial Corp. (NASDAQ:CVBF). At the end of the first quarter of 2022, 10 hedge funds held stakes in the bank holding company worth $50.09 million. This is compared to 12 hedge funds in the preceding quarter with stakes worth $39.18 million.
In the first quarter of 2022, Schonfeld Strategic Advisors raised its stakes by 86% in CVB Financial Corp. (NASDAQ:CVBF), bringing them to $23.47 million, which makes it the top shareholder in the bank holding company.
2. WisdomTree SmallCap Dividend ETF (NYSE:DES)
WisdomTree SmallCap Dividend ETF (NYSE:DES) invests in small-cap growth and value stocks with a preference for dividend-paying companies. The fund seeks to track the performance of the WisdomTree U.S. SmallCap Dividend Index and uses a representative sampling technique. As of July 5, WisdomTree SmallCap Dividend ETF (NYSE:DES) has an expense ratio of 0.38% and offers a yield of 2.06%. The fund has 670 holdings and a top ten holdings concentration of 10.59%.
Utilities cover 10.90% of WisdomTree SmallCap Dividend ETF’s (NYSE:DES) portfolio. Spire Inc. (NYSE:SR) is a public utility holding company that provides natural gas services throughout the United States. Spire Inc. (NYSE:SR) is among the fund’s top holdings and represents 1.30% of its portfolio. As of May 25, Mizuho analyst Gabriel Moreen has a $77 price target and a Neutral rating on Spire Inc. (NYSE:SR).
The hedge fund sentiment for Spire Inc. (NYSE:SR) is positive. At the close of Q1 2022, 18 hedge funds held stakes in Spire Inc. (NYSE:SR) worth $120.24 million. This is compared to 10 positions in Q4 2021 with stakes of $15.14 million.
As of March 31, Millennium Management is the leading shareholder in Spire Inc. (NYSE:SR), owning over 0.55 million shares which amount to a stake of $39.95 million.
1. Invesco S&P SmallCap Low Volatility ETF (NYSE:XSLV)
Invesco S&P SmallCap Low Volatility ETF (NYSE:XSLV) invests in less volatile stocks of small-cap companies. The fund seeks to track the performance of the S&P SmallCap 600 Low Volatility Index and employs a full replication technique. As of July 5, Invesco S&P SmallCap Low Volatility ETF (NYSE:XSLV) is offering a yield of 2.94% and has an expense ratio of 0.25%. The fund has 121 holdings, the majority of which belong to real estate, financials, and technology segments, and has a top ten holdings concentration of 10.66%.
Agree Realty Corporation (NYSE:ADC) covers 1.07% of Invesco S&P SmallCap Low Volatility ETF’s (NYSE:XSLV) portfolio and is ranked among the fund’s top holdings. Analysts are bullish on Agree Realty Corporation (NYSE:ADC). On June 22, Credit Suisse analyst Tayo Okusanya initiated coverage of Agree Realty Corporation (NYSE:ADC) with a buy-side Outperform rating and a $78 price target. On June 30, Jefferies analyst Linda Tsai raised her price target on Agree Realty Corporation (NYSE:ADC) to $82 from $80 and reiterated a Buy rating on the shares.
At the end of Q1 2022, 21 hedge funds held stakes in Agree Realty Corporation (NYSE:ADC). The total value of these stakes amounted to $141.55 million. Of these, $50.50 million were of Millennium Management, the largest shareholder in the company.
You can also take a look at 10 Best ETFs for Long-Term and 10 High Yield Dividend ETFs to Buy Now.
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Disclosure: None. 10 Small-Cap ETFs to Buy Now is originally published on Insider Monkey.
