Small-Cap ETFs: Are They Leading The Way?

In general, when an economy and market recovers, it is the small-cap stocks and the exchange traded funds (ETFs) that track them that lead the recovery, but is this the case in the current market uptrend?

Small-cap stocks are those with a market capitalization of less than $1 billion. These companies rely on fewer products, have less available cash and are generally more risky than larger companies. But on the plus side, small-cap companies tend to be more nimble and quick to react as market conditions shift.

Matt Krantz of USA Today says that history this time is proving to be correct: small-cap stocks that are leading the recovery effort.  In fact, small caps are up nearly 70% from their March lows, whereas the larger stocks have gained nearly 45%.  This can further be evidenced through the performance of the following small-cap ETFs:

• Vanguard Small-Cap Value ETF (VBR): up 21.1% year-to-date

• PowerShares Dynamic Small Cap (PJM): up 8.5% year-to-date

• iShares Russell 2000 (IWM): up 19.5% year-to-date

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